When you create something, anything from an idea to a child, you never know where it will end up. It is the same when you create money. The liquidity generated by various stimulus packages has helped national economies have the beginnings of a recovery. It has also assisted speculators to push up the prices of currencies, commodities and emerging markets. It has helped revive the carry trade as investors buy cheap dollars and Euros and use them to purchase higher yielding, but riskier bonds of countries trying to protect their currencies.

In China the stimulus package has been successful in plowing money into inefficient state owned industries while letting China’s 40 million small and medium-size enterprises, which employ three quarters of the people and produce over two thirds of industrial output, starve. It has also created a mismatch as China’s over capacity goes into overdrive producing goods no one will buy. No doubt it will also increase the bad loans of the state owned banks, which have yet to deal with bad debts left over from the last recession or ones created in the most recent boom. A plus is that it has led to the best month for sales of luxury cars in Shanghai.

One would think that the investment community would be rather tired of asset bubbles at this point, but I guess the players will continue with a game they are used to.