Will the U.S. Federal Reserve’s latest attempt to stimulate the economy succeed? That all depends on how you define success.

The Fed’s first round of quantitative easing – call it QE1 – began in early 2009 and had some positive effects. Combined with a myriad of other government interventions, it helped the U.S. mortgage and credit markets recover from Depression-era levels. Stocks and commodities rallied as the U.S. dollar weakened, and for a time, the economy improved and asset prices gained back ground.

MORE FROM DAVID ROSENBERG

• The ingenious U.S. currency ploy
• Muddling through: Don't count out a double dip just yet
• What Bernanke isn’t saying is as important as what he is

VIDEO

The downside of QE2

VIDEO

Now, Fed eyes bank dividends

VIDEO

Deflation and the Fed

But if the ultimate goal of the policy was sustainable growth and a declining unemployment rate, then QE1 does not deserve a passing grade. Since its launch, real final sales (that is, real GDP growth excluding inventories) have never climbed at more than a 2-per-cent annual rate. In the past three quarters, the trend has slowed even further. That’s a dismal result compared to a normal recovery, where real final sales are usually accelerating at over 4 per cent at this point in the business cycle.

As for the jobless rate, in early 2009, it was hovering around 8.6 per cent. Today, with the passing of QE2, it sits at 9.6 per cent. Rising unemployment is not exactly the hallmark of a successful policy.

It’s now clear that the excitement over quantitative easing has been overdone. The Fed has no magic potion that can deal with the deep-rooted structural problems in the U.S. economy – stretched personal balance sheets, excessive housing supply, overregulation and chronic unemployment.

If the $1.7-trillion (U.S.) that was spent during QE1 didn’t bring on a sustained improvement in the economy, what can $600-billion of QE2 do? At best, it may boost asset prices. The program will focus on the Fed buying five- to 10-year Treasuries. By doing so, the central bank hopes to raise bond prices and bring down interest rates in that part of the yield curve.

The problem is that rates in that area of the Treasury curve are already hitting new lows. It’s not clear whether reducing them by a fraction of a percentage point can do anything to support a sustainable recovery.

Maybe Ben Bernanke is rushing to reflate asset prices because he knows that 2011 will bring pressure for fiscal restraint from the new Republican majority in the House of Representatives. Despite the Fed’s pledge to do even more in the future if the economy continues to weaken, Mr. Bernanke likely realizes that what he announced last week could well be the final kick at the can.

A valuable lesson from Japan

Those rushing to buy stocks based on optimism about QE2 should go back to March 19, 2001, to see what happened when the Bank of Japan embarked on its own quantitative easing program – a massive effort in which it boosted reserves at commercial banks sixfold over a four-year span. The San Francisco Fed published a report on the impact in 2006 and concluded that while the plan was successful in terms of supporting “measurable declines in longer-term interest rates” and “greater risk-tolerance in the Japanese financial system,” the bottom line is that “quantitative easing may have had the undesired impact of delaying structural reforms.”

In other words, quantitative easing is no antidote for structural economic problems, even if they manage to give markets a short-term sugar high.

Investors should remain cautious. They should look for what is still cheap. One possibility is 30-year U.S. Treasuries. In a world where core inflation is running below 1 per cent, those bonds carry a 4-per-cent yield. Yet they’re unloved, even detested, because of fears of inflation down the road. All things considered, I still find them appealing.

Another possibility is to hold one’s nose and stick with euro-denominated assets. Europe is still beset by default risks in some countries, but the reality is that the European Central Bank is not going to follow in the Fed’s footsteps and devalue its currency.

Finally, commodity prices are likely to climb in the long run. While the recent runup in prices may be overdone, you should look for opportunities to buy if there is any pullback in those prices.

Outside of this handful of investments, it’s tough to find much that looks attractive.