“QE will weaken the Fed’s balance sheet, and undermine confidence in the institution.”
QE in 08/09 has been applied. Basically the FED prints money and buys stuff. Note that this is no different from how the modern banking system works. Banks create money out of thin air (that is the money multiplier) and PEOPLE buy stuff with it. Market centric wisdom says that markets will allocate that money to the most productive use. SO let the banks create money, lend it and let the people make the smart decisions.
Problem is that lately the people have been buying mc-mansions, HDTVs and sports cars. And here we have a clear example where "markets" just fall flat on their faces. I hate to say this, but it was better when Reagan was spending money on defense or Obama was spending money on healthcare. Sometimes the people are just hedonistic retards.
QE 1.0 was a success in that it provided liquidity in markets that needed it most and avoided a death spiral of illiquid markets and plunging prices (what happened in the great depression). The FED have tried to get the markets off the QE and they are throwing a tantrum... we may be looking at QE 1.5