Fiat currency that it LENT into existence is initially inflationary, then deflationary as the loan (plus interest) is repaid. Continual expansion of credit in the aggregate is the only thing that assures (for as long as it works) that it's inflationary on net.
Fiat currency that is SPENT into existence, on the other hand, is strictly inflationary. Unless you have a mechanism for calling that currency back in for destruction. It also leaves the problem (the artificial pseudo-issue) of who are the lucky few chosen recipients that will be the first users of counterfeit funds before its effects permeate through the market, devaluing all other currency through dilution.
You wrote, "You start handing money out for free, it tends to accumulate in the wrong places."
That addresses the question of how debased counterfeit currency is allocated (introduced to the market). However, no matter what, counterfeit currency ALWAYS goes to the wrong places -- because it's counterfeit. It cannot be 'lent' or 'spent' into existence without stealing value from others, regardless how or whether or not it accumulates, or even how it is 'recycled'.
In my opinion, it doesn't matter if counterfeit currency was dropped out of Uncle Ben's helicopters, amplified or loaned into existence by fractional reserve lending institutions, or simply spent into existence by a print-happy Congress that gets to forgo that pesky inconvenience of actually having to tax directly (and be politically accountable to taxpayers as a result). Saying, "Well, at least all that stolen value didn't go to Goldman Sachs!" is absolutely no consolation to me at all, any more than the argument that, "Well, at least when we steal and redistribute this way, the currency has a chance of recycling -- trickling down to those who are not front-line recipients.
It doesn't matter to me who benefits from CONFISCATED WEALTH REDISTRIBUTION, or which THEFT CHANNELS are more likely to 'recycle' some of that STOLEN VALUE to me or anyone else. The fact that such a thing is not possible without theft still stands, as does the inescapable fact of the numerical problem of aggregate accumulation and growth via a perpetual dilution of the fiat currency supply.
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