In Frances Coppola's recent article on CoinDesk titled "Why Money Scarcity Means Someone Goes Hungry" explained why inflation is the solution to poor peoples' problems. Her argument follows as thus:

A. Money is a store of value
B. Money is a medium of exchange.
IF[money is distributed evenly across society AND used to purchase basic necessities]
THEN[when the population grows, the supply of money must grow at the same rate or ELSE people won't have enough cash to purchase basic necessities].

But that's not all, she goes on to explain why those dirty evil "Savers" who hoard all their money all to themselves are also responsible for killing the poor. She says that by removing money (this excludes depositing it in banks who use fractional reserve lending) from circulation, they are lowering the supply of money available, thereby causing money to be more scarce and thereby causing the poor to not have enough money to live.

To quote her final claim following her tirade against saving money, "Deflation due to sustained money scarcity destroys the economy and wrecks lives. At the limit, it causes mass starvation. This is not just because saving money takes it out of circulation, leaving less to go round."[1]
According to her, the solution to poverty is to print more and more cash so the poor have enough. To her, inflation is on the side of the poor and she is their champion campaigning on their behalf against the evil and wealthy savers.

How ironic.

I write this response not to argue deflation is the best monetary policy for economic growth--because it certainly isn't. Rather, that the current process of Quantitative Easing orchestrated by the Federal Reserve, US Treasury Department, and Central Banking institutions is harming the poor by inflating assets and equities while also making it harder for the poor to climb up the rungs and scratch together enough to buy a home.

Coppola's thesis that inflation benefits the poor by increasing the circulation of money, while right in a theoretical sense that inflation inspires finding a productive use for money, is dangerously flawed in reality. Let's follow the steps of money creation to understand why this is.

1. The Treasury sells a bond (an IOU) promising to pay back $10,000+.76% interest each year over a 10 year period.

2. This bond is bought by a Central Bank who hands money over to the US Treasury so they can go ahead and buy more bombs/promise more welfare.

3. The Central Bank then sells this bond to the Federal Reserve for $11,000 (a slight profit). The Federal Reserve does this by writing a check that follows back to an account that technically has no money in it. But, the check doesn't bounce (it is the Federal Reserve after all) and BAM just like that $11,000 is created out of thin air and added to circulation. This is a win for the poor right? After all, there's now more money in the system so according to Coppola's thesis money is less scarce. The greedy savers who hoard their money away from the rest of us lost a little of their purchasing power. Is this a huge win? Wrong.

Here's something you probably already know. Deep down, those central banks (the ones being given free money by the Federal Reserve) they are dirty little savers themselves. They hate seeing their purchasing power be swept away by increasing supply. So, as the final step before the money enters everyday circulation, the Bank uses the money to purchase assets.

The Central Banks buy stocks with this money. They buy real estate. They buy gold. They buy water. They buy whatever they want. This causes asset prices to rise like you're seeing now. Now, you may be thinking "but Matt, won't that money they just spent on gold end up in the hands of the poor people who need it?" Good question, you! After all, that was like the whole reason we said we needed to do this. But, think about it, who owns gold? It's wealthy people. Who owns real estate? It's well to do people. Who owns stocks? Who owns equity in private companies? You get the picture.

Yes, of course eventually that new money supply will reach the poor. Years after every other son of a mother in this country has got their hands on that dollar, the starving single mother we set out to help at the beginning finally gets a piece. You may want to point out that the US Treasury got 10 grand from this transaction too. Remember, they sold this bond in the first place. Maybe they've done something with this money to help the poor?

By the time the incompetent, peddling, self-interested politicians in D.C. have decided the best way to divide up that money between their lobbyists, family members, and rich friends that starving single mother has seen that house in a good school district for her daughter go up 35% in a month. To reference the early economist Richard Cantillon, "The original recipients of new money enjoy higher standards of living at the expense of later recipients." [2] Back in his day, that money was geographical concentrated in Paris where the gold went. Today, it's in the banking system. There's a reason the finance industry is so immense. It is the first step in the creation of money.

To synthesize my response to Coppola: Yes, deflation is harmful to the economy, but the modern system of money creation is corrupt and directly responsible for increasing inequality. The poor are at the back of the line and are in fact harmed by this process. It's not fair. It's not right. It's unjust to support quantitative easing in this way. 

However, I don’t intend to be just a naysayer on this issue. Hard to imagine I know, but there is a fair solution to this problem that protects the poor from both money scarcity and asset inflation--and it exists thanks to crypto! Hit that follow button so you’ll come back on Saturday to find out in Pt 2.