Some (more) evidence for the proposition that monetary policy is currently pushing on a string
The velocity of money measures the "speed" with which money turns over. When velocity falls, then people are holding on to money longer, spending a given quantity of money less rapidly, and total spending falls. If this is happening, then expanding the quantity of money is less effective at providing a boost to spending. (Velocity is calculated as nominal GDP divided by the money stock.)
And recently, the velocity of money, regardless of how one measures it, has declined sharply.
The M2 velocity of money peaked during the second quarter of 2006 at 1.934. In the fourth quarter of 2008, it had declined to 1.780, a decline of 7.9%. That's the largest decline in M2 velocity over a 10-quarter period since late 2002/early 2003, and the fifth largest since 1959.
The M1 velocity of money continued to rise (erratically) until the second quarter of 2008, when it reached 10.380. By the fourth quarter of 2008, it had declined by 10.3%, to 9.310. This is the largest decline in M! velocity over a 2-quarter period at least since 1959 (which is far back as my M1 series goes).
So in addition to having no further room to cut discount rates, the Fed faces a public that is, increasingly, holding on to the money it has. No wonder a lot of economists think we've hit a liquidity trap.