Basically the Fed prints money and gives it to the banks. It borrows from the private sector rather than taxing them outright. With the interest the private sector earns from government debt, it allocates new demand.
Lately the private sector hasn't been investing enough to maintain full employment and the jobs it creates are not as high paying as they once were, damaging aggregate demand further. The main focus of the corporate sector is profits and rent extraction.
The private sector doesn't allocate demand very well at all. Exhibit A is the housing bubble and financial crisis. Exhibit B is the low quality of jobs being created. Much better to tax and spend instead of borrow.
In the meantime, however conservatives need to be beaten into obscurity as they were in the 40s, 50s and 60s and the Rubinite neoliberals need to be purged from the Democrats.
In the meantime Fed policy can promote wage inflation. Government can borrow cheaply and invest as the euthanasia of the rentiers continues apace. The capitalists and liquidity specialists are their own gravediggers(TM).
In the meantime ultimately a social movement is needed. International and based on the labor movement and OWS, incorporating those "interest groups."
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