Sense and nonsense in the quantitative easing debate

The Federal Reserve eased monetary policy to boost the flagging recovery, announcing a modest extension of "Operation Twist", that is the purchase of long-term bonds financed by the sale of short-term paper. The stock market initially sold off but has bounced back.  In its statement, the Fed said:

|Peter Boettke| John Cochrane has a piece up entitled Sense and Nonsense in the Quantitative Easing Debate, and he offers some straightforward arguments most of which I buy completely (e.g., non-effectiveness of the policy in stimulating the economy) and others that I am not completely persuaded of (the non-inflationary danger of the policy for the economy).  But I believe the most important point he raises is:

With the UK economy going sideways and continental Europe in the doldrums, all eyes are on the US. It could be a “breakout” year. That’s the phrase used by a respected group of analysts at Société Générale, who believe the US economy, after years spent taxiing down the runway, is about to take off. Friday’s jobs numbers, which showed the unemployment rate tumbling to 7.7% from 7.9%, added to the growing euphoria.

This discussion of Fed policy seems like a stacked deck:

Long-term interest rates are now unsustainably low, implying bubbles in the prices of bonds and other securities. When interest rates rise, as they surely will, the bubbles will burst, the prices of those securities will fall, and anyone holding them will be hurt.