So what exactly is quantitative easing?

Don't be shy - it's all right if you don't really know about this rather complicated monetary action that the Federal Reserve is supposed to lay out tomorrow. Sometimes it's simply dubbed QE2, prompting a bunch of dumb references to a cruise line and no doubt confusing the matter even further. (By the way, "2" refers to this being the second time that the Fed has instituted such a strategy).

Basically, quantitative easing is when the Fed decides to throw more money into the economy (and the Fed can create as much money as it needs with little more than a keystroke). The central bank uses these funds to buy a variety of bonds and other financial instruments from financial institutions. The proceeds from those purchases get added to the banking system, and that, in theory, might induce more lending, which in turn might help boost the overall economy. From BreakingViews:

If banks swap their securities for reserves, they have fewer loans on their balance sheets and more cash to lend. Assuming they want to keep their own businesses static - admittedly, a big assumption in the current climate - they will then start lending to end-borrowers and so start putting more liquidity into the economy. To some extent, central banks have been engaging in quantitative easing for the past year. The Federal Reserve's balance sheet, for example, has mushroomed: It is up eighteenfold in the past four months. The monetary expansion certainly has not yet done the trick so far in this recession. Credit conditions have continued to tighten in the United States.

Normally, the Fed has a much easier way of getting the economy back on its feet. It lowers interest rates. But the Fed has been cutting rates over and over again, to the point where they're pretty much at zero - and it hasn't done much good. Will a second burst of quantitative easing do the trick? For weeks, economists have been divided on the subject. A few have questioned whether it could do harm. Among the opinions (via the WSJ):

"I don't think that anything they will end up doing will instantly and by a huge amount turn the economy around," said former Fed Vice Chairman Donald Kohn. "But it could help on the margin in what is an unsatisfactory situation." James Hamilton of the University of California at San Diego agreed. "Unemployment is unacceptably high and if there is something the government can do to help things, the Fed should be looking into those options," he said. The move would have a "modest effect" on interest rates, one already factored into markets, he said. "Will anything the Fed does bring down unemployment quickly? The answer is no." Others say it's simply a bad idea, including Allan Meltzer, a Carnegie Mellon University professor and Fed historian. He said the Fed's move "won't do much." Pushing investors out of long-term Treasurys into corporate bonds and stocks, as the Fed is trying to do, will repeat past Fed past mistakes, he said. "Is that a sensible thing for a central bank to be doing?" He doesn't think so.

A key question is how much the Fed will be shelling out. Too much and you run the risk of spawning inflation. Too little and you run the risk of it not being effective. The current bet is $500 billion over six months, which many consider to be relatively low. Former Fed governor Laurence Meyer says the Fed would need to buy $5.25 trillion of new assets to do the job. Goldman Sachs says $4 trillion would be needed. Truth is, everybody is guessing.