Here is what I think is going on in the US:
1) Loan money to banks at zero percent interest:
2) Banks use this free money to buy treasuries:
3) Have a further $9 trillion hidden away somewhere in secret just in case:
http://www.youtube.com/watch?feature=player_embedded&v=GYNVNhB-m0o4) Pass Obamacare and spread FUD about the terrible things that happen to a small percent of people without insurance. Obamacare says government subsidizes healthcare for anyone within 400% of the "federal poverty level", as well as further incentivises everyone to buy insurance even if they don't really need it (money which the insurance companies then invest, etc):
Data from:
http://meps.ahrq.gov/mepsweb/data_stats/MEPSnetHC.jsp5) Implement
ZIRP (spend the money the banks loaned to the government):
Under ZIRP, the central bank maintains a 0% nominal interest rate. The ZIRP is an important milestone in monetary policy because the central bank is no longer able to reduce nominal interest rates. Monetary policy is at its maximum potential to drive growth under ZIRP, because the central bank has no more tools left to stimulate borrowing. ZIRP is very closely related to the problem of a liquidity trap, where nominal interest rates cannot adjust downward at a time when the loanable funds market has not cleared.
When monetary policy is already used to maximum effect, to create further jobs, governments must use fiscal policy. The fiscal multiplier of government spending is expected to be larger when nominal interest rates are zero than they would be when nominal interest rates are above zero. Keynesian economics holds that the multiplier is above one, meaning government spending effectively boosts output. In his paper on this topic, Michael Woodford finds that, in a ZIRP situation, the optimal policy for government is to spend enough in stimulus to cover the entire output gap.
6) Ride out the healthcare bubble until the boomers are gone and the economies of other nations have collapsed or otherwise stabilized.
So why is this theory dumb?
