Presidents, prime ministers, finance ministers, and chiefs of central banks throughout the world have been trying to heal the global financial markets and the economy since 2008. Not surprisingly, all the aid programs, healing plans, and economic incentives attempted worldwide relied on a single, old, and familiar economic paradigm that states that the solution to the crisis lies in a combination of monetary expansion (interest rate cuts) and fiscal expansions (increase of government expanses and pouring of funds into the market). The only differences between these solutions were in the amount of money poured in and the amount of expansion taken.
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Monetary expansion manifests primarily in interest rate cuts under the assumption that increasing the supply of cheap money will encourage commercial activity and private consumption, and thus boost growth and employment.
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Fiscal expansion means increasing government intervention in economic activities by increasing public expenditures, pouring funds into the market, tax cuts, and other government incentives. Increasing the government deficit to encourage economic activity is seen as a necessary evil and aims at those places where the “invisible hand” mechanism and the forces of the free market have failed.