First User Advantage

Well I've been looking real hard
And I'm trying to find a job
But it just keeps getting tougher every day
--Steve Miller Band

Wealth cannot be created by printing money. However, wealth can be redistributed by printing money.

Nearly all money created in our current system comes from credit creation. This is the domain of the Federal Reserve. The Fed offers credit (currently at near zero cost) to big financial entities (we'll just call them banks here) and quasi government agencies. If the banks and agencies borrow from the Fed, then 'credit money' is created. The banks and agencies become 'first users' of the new money.

Money that is created out of thin air has the most value when it is first created. This is because it takes a while for prices to readjust to the increase in money supply and commensurate increase in demand for things that the new money can buy. After a few exchanges, however, the purchasing power of the new money declines as demand bids prices up.

It should not be hard to figure out who gets wealthier and who gets poorer in this arrangement. The big banks and government get first use of the money. They can buy things like financial assets, property, labor, etc while prices are still relatively low. Subsequently, prices rise. Banks are wealthier. Politicians can deal in favor for their SIGs.

Everyday people don't enjoy the same priviledge. While they are waiting for the new money to trickle down, the dollars that they already hold decline in value because they purchase less of the assets that the banks et al have bid up in price. Those near the bottom of the social pyramid are particularly hurt because they own few financial assets (e.g., stocks and bonds) that move higher on the speculative actions of the first movers. By the time the wave of new money trickles down to Main Street, the average person possesses fewer economic resources than previously.

Presto! Courtesy of the Fed and the politicos, wealth has been redistributed. Resources migrate to the first users at the expense of the late users.

This is the principle of First User Advantage.

If you're looking for factors that widen distribution of income, then you've just found another one.

position in Treasuries, SPX