The Great QE Debate: Miscues on the Measures of Success

I was listening to Bloomberg radio this morning on the way to the office, and they were having a colorful conversation on whether or not quantitative easing has been effective in saving the US economy from total collapse.  Most specifically, they were addressing the 'results' of QE2, pointing to interest rates as an indicator of the success of the program.  If the QE program didn't cause interest rates to go down, then it must not have been much of a success.  In fact, the 10-year note has risen over 75 basis points in the time since the announcement of QE2.  And so, one of the panelists was using this as evidence of the policy's failure. 

BUT... since this exercise isn't conducted in a vaccuum, outside factors also have an effect on interest rates and make that argument simply an amature one, and it's annoying that professionals and politicians alike are wasting so much time pouring over flawed statistics.

The resulting movement on interest rates after the QE2 announcement has been in an upward direction.  Had not perhaps a larger injection been priced into the market?  Or, perhaps more likely (and I know, I'm actually not going to sound bearish on the economy, here) is that though the improvement in the economy has been rather minimal, the worst is finally over, and mid-to-long term interest rates have nowhere to go but upwards after the worst downturn since the Great Depression.  With rates having been at historic lows for quite some time, the market has begun to resist such low returns in favor of at least a little bit of risk, in order to make a few bucks.  Then the great supply-demand relationship comes into play and bond yeilds rise, regardless of how the government may try to fight the market to keep rates down.

...and let's not even get into the issue of how it's really too early to be juding the 'results' of a policy that is still in the implementation stages and hasn't really had enough time to take effect just yet.  Personally, I think that barely enough time has passed for us to have an understanding on the impact of what QE1 did for the economy.  But our need for instant gratification persists....

In the end, all that can be said for certain about QE2 at this point is that without it, interest rates would be higher today than they currently are, and that would have a pretty negative effect on the potential for growth out of the recession for the US economy.  Now, whether or not you view that lower potential as a good or bad thing is another entire debate...