Steve Keen has a super post explaining why QE does not work or explaining how in fact it is supposed to work. At the same time, world worries about the effect of impending withdrawal of QE. But my focus is somewhat different.
Can the QE be expected to create a global turnaround?
I would say no. The reason I am keep a small probability open is because theoretically it is possible but quite a long shot. If you look at Prof. Keen's first cut model, the Banks need to buy assets (he calls it stocks but assets is better term) from the economy. This creates money supply which allows producers access to capital, employ people and therefore give consumer access to income and therefore spending power leading to pick up. As you will note, this is not quite that simple.
In principle, I would say the current model of QE will work if banks make tremendous profits and spend it priming the spending cycle to create employment and resulting spending. Now you realize that to effect that kind of priming, bank profits will have to soar and corresponding banker salaries have to push far northward. All in all, not happening.
The purchase we get from this type of QE per dollar of traction gained by the economy is fairly low.
What kind of QE WILL work?
Any QE which will create jobs with certainty of income over reasonable period of time, say 15 years, will be adequate. The exact amount of income does not matter so long as it is above a bare threshold and so long as it is decently correlated with nature of job. Even when so provided, the purchase from such QE will come over 3 year period provided there are correlated reforms in market place to protect the income from malicious extortion using penal mortgage rates or credit card frauds etc.
For the record, any kind of job will do but jobs which build future capability will be more valuable than crude "dig-a-hole-fill-that-hole" jobs. The benefit from these jobs will be a bonus. Ideally, you want the population to work on the next big thing. At the moment it is not clear what that thing is - it is most likely green and blue.
What has the current QE achieved?
One may ask if the current QE is totally useless. It is not. The crisis of 2008-2009 was result of three things freezing together - an over-leveraged consumer, a credit-starved producer, non-functioning market. The present QE worked on easing the producer, though at a great cost. Sadly, it has not quite helped with over-leveraged buyer or not much has been done to fix the market. Further the over-leveraged consumer is going to bear the burden of easing of producer through higher taxes limiting his ability to spend for quite some time. In effect, the current QE has eased the producer at some cost to the consumer.
My approach would have been different. I would have focussed on the jobs and when income stabilizes the credit would have automatically flowed to productive quarters. The benefit of this approach was its moral compass was pointing correctly. Government was taking care of people rather than focussing on the corporates, returns on credit would have been available where it was productive. Where credit was lent inappropriately it would have been marked down by players themselves because of inter-firm rivalry. And in the process, the overall expenditure would have been lower.
What kind of recession are we in?
The worst kind! No, it is not smaller than the Great Depression rather it is quite larger than that. We are at the threshold of global realignment of geographical dispersion of production and consumption. The ideal world we imagined when we studied "competitive advantage of nations" will come to bear if each of the nation acts prudently. This cannot happen in the current environment of mistrust and currency wars. We need sanity to prevail - and usually, it doesn't and usually this kind of thing results in a real war. On that somber note I leave you, let us pray sanity prevails and politicians do the right thing.