When the government deficit spends, it issues bonds to be bought on the open market. If its debt load grows too large, mainstream economists say, bond purchasers will demand higher interest rates, and the government will have to pay more in interest payments, which in turn adds to the debt load.
To get out of this cycle, the Fed?— which manages the nation’s money supply and credit and sits at the center of its financial system — could buy the bonds at lower rates, bypassing the private market. The Fed is prohibited from buying bonds directly from the Treasury — a legal rather than economic constraint. But the Fed would buy the bonds with money it prints, which means the money supply would increase. With it, inflation would rise, and so would the prospects of hyperinflation.
This kind of flies in the face of the perspective MMT tries to give. Treasury bonds are money. Cash is money. You can't increase the money supply by trading money for money. What QE DOES do is alter the risk-free nominal return somebody can get by holding US dollars' cousins, US treasury bonds. This can affect, first and foremost, credit markets, and whether investors will go into riskier assets to seek return, and MAYBE will affect whether people make more drastic decisions, such as whether to hoard non-dollar assets just to get rid of dollars. However, it should be looked at in THIS context, not "QE is printing money." The way QE COULD lead to high inflation is by inducing the credit markets to fund productive investment, and full use of productive capacity. So it's the horizontal money (credit), not the vertical money (dollars & treasury bonds) that QE drives the economy through.
Also, regarding deficits, I had never thought about it this way, but looking at what fiscal deficits "should be" run to maintain a healthy economy became immensely more clear when someone in the MMR commentary focused on our trade deficit and what that is truly doing to our DOMESTIC base money supply.
Basically, when the US runs a fiscal deficit, it's creating money.... this is bone-stock MMT. But trade deficits (or more precisely, current account deficits) are effectively us "exporting our currency" to other countries.
From 1997-2008, our current account deficits ran far in excess of our fiscal deficits. So we were creating a lot of money, but then we were exporting all of it and then some that we had accumulated. Much like if our military was building 5 Aircraft Carriers per year but then exporting 6 to other countries... eventually we'd have a pretty sparse military.
So all-in-all, we need to have enough base money (net-savings) to cushion our households and businesses against asset shocks that could put us in a balance sheet recession. We can't have that if we've just exported it to China for an iPod. So I've come to view money very differently since encountering MMT/MMR. QE is a tool to affect credit-money expansion, and deficits actually create money, but with the caveat that any current account deficit is the equivalent of losing that money right after it was created.