A pedestrian walks past the Federal Reserve building on Constitution Avenue in Washington on March 19, 2019. Leah Millis | Reuters

Federal Reserve economists warn that printing money to pay for deficit spending has been a disaster for other nations that have tried it. In a paper that discusses the burgeoning U.S. fiscal debt, Fed experts note that high levels are not necessarily unsustainable so long as income is rising at a faster pace. They note that countries that have gotten into trouble and looked to central banks to bail them out haven't fared well. "A solution some countries with high levels of unsustainable debt have tried is printing money. In this scenario, the government borrows money by issuing bonds and then orders the central bank to buy those bonds by creating (printing) money," wrote Scott A. Wolla and Kaitlyn Frerking. "History has taught us, however, that this type of policy leads to extremely high rates of inflation (hyperinflation) and often ends in economic ruin."

They cite Weimar-era Germany, Zimbabwe in the 2007-09 period and Venezuela currently. All three faced massive deficits that led to hyperinflation due to money printing. "An important protection against this type of policy is to create an independent central bank that is insulated from the political process and has clear objectives (such as a specific target for the inflation rate) so that it can make policy decisions to sustain economic health over the long run rather than respond to political pressures," the economists added. The paper never specifically mentions Modern Monetary Theory, though the approach it describes meshes with central tenets of the MMT approach. The Fed analysis does reference a paper on MMT in a sidebar box on monetary "owls" — as opposed to "hawks" who are against deficits and "doves" who don't care as much about them. The owls, according to the authors, "suggest that a government that controls a fiat money system is not constrained because it can simply create more money to pay its debts."

Deficit spending as an investment