"Where is the end consumer and what are they purchasing? The payouts now can be afforded because of the money that has been invested in steem power which is locked up and can only slowly trickle out"

I'm not sure if this is that different from when the Federal Reserve prints money, except that they do it whenever the feel like it and they make it out of thin air.

The currency gets mined and created at a controlled rate and recirculated throughout the economy (namely steemit.com)...eventually elsewhere.