Those who place their faith in a sustainable economic recovery emanating through government fiat will soon be shocked. Colossal central bank counterfeiting and gargantuan government deficit spending has caused the major averages to climb back towards unchanged on the year. Zero interest rate and negative interest rate policies, along with unprecedented interest rate manipulations, have levitated global stock markets. But still, sustainable and robust GDP growth has been remarkably absent for the past 8 years.

Equity prices have now become massively disconnected from underlying economic activity, and the recession in corporate revenue and earnings growth is exacerbating this overvalued condition. Throw in the fact that earnings have been manipulated higher by Wall Street's recent prowess in the art of financial engineering, and you get an extremely combustible cocktail.

I have been on record saying this will end in chaos and here is how I think it will unfold:

Global central banks have universally adopted inflation targets, yet claim those goals have yet to be met. This is because of the inaccurate way governments measure consumer price inflation. Nevertheless, most of the new money created has been pushed directly into real estate, equities and bonds by financial institutions; thus primarily inflating the asset prices of the rich and increasing the wealth gap. And since these economic leaders equate growth with inflation, the inability to achieve inflation targets is viewed also as the primary reason why growth has remained so elusive.

To bring inflation sustainably above the stated goals of 2% the private banking system would have to be able to push credit directly onto debt disabled consumers, which is impossible unless real income growth, after decades of falling, suddenly begins to surge; and/or consumer debt levels were dramatically pared down.

Therefore, central banks would need to inject credit directly into consumer's bank accounts while pushing deposit rates sharply into negative territory. In order for that to be truly effective they would also have to ban physical currency. To date no central bank has dared to use these drastic measures to meet their inflation targets...although if they did, intractable inflation would be guaranteed.

Governments have failed to reach their stated inflation and growth targets through the current "conventional" strategies of currency depreciation and manipulating the yield curve to record lows. The salient issue being that chronically low nominal GDP growth rates are resulting in an insufficient tax base to handle the sharply mounting global deficits and debt. Japan is a perfect example of the flawed strategy of producing growth through inflation: the nation is suffering through its third recession since 2012, despite Prime Minister Abe's monumental efforts to lower the value of the yen and ramp up government deficits.

Enormous increases in government debt have historically caused sovereign debt yields to spike, causing debt service payments to become unmanageable. The recent European debt crisis is a perfect example of this:

Back in 2012, creditors grew wary of the countries referred to as PIIGs (Portugal, Ireland, Italy and Greece); and their ability to pay back the massive amount of outstanding debt they had accumulated. Consequently, creditors drove interest rates dramatically higher to reflect the added risk of potential defaults. For example, in Portugal the Ten-year Note went from 5% to 18%, as government debt to GDP soared from 70%, before the crisis, to where it sits today at 130%. But thanks to their European Central Bank's (ECB) policy of buying ever-increasing amounts of Portuguese debt, that yield today stands at just 2.7%

The ECB, the Bank of Japan (BOJ) and the Peoples Bank of China (PBOC) have already promised the markets to artificially hold borrowing costs at record lows as they try to inflate their way out of a debt crisis. This is why ECB head Mario Draghi felt compelled to "do whatever it takes" to keep bond yields quiescent. This commitment of government to usurp control over the entire sovereign debt market is spreading across the globe.

The Federal Reserve is about to join these other central banks once the insipient U.S. recession manifests, even to the eyes of an economically-blind member of the FOMC. This dilating epiphany will occur as annual deficits vault once again over one trillion dollars and pile onto the $18.6 trillion dollar debt. It will be at that point all major global central banks will be in a position of permanently monetizing most, if not all, of the massive sovereign debt issuances.

The mandatory strategy of allowing deflation to rebalance debt levels and return asset prices to a sustainable equilibrium has become anathema to global leaders because the temporary depression that would result is politically untenable. Instead, Gov't Leaders are 100% committed to the flawed and baneful strategy of trying to create viable GDP growth through prodigious currency depreciation, interest rate domination and inflation.

In order to facilitate this inflation scheme, Central banks, in full cooperation with governments, are swiftly moving to the strategy of circumventing the banking system and directly monetize sovereign debt. The bottom line is intractable inflation has been the inevitable and tragic fate of all insolvent governments.

But this scenario of central bank over reach is not just the ramblings of some Cassandra. The new Economic Counselor for the International Monetary Fund (IMF), Maurice Obstfeld, called for unconventional intervention in an interview ahead of the annual IMF research conference. This economic leader of the new world order said, "I worry about deflation globally...It may be time to start thinking outside the box...at the zero lower bound, our options are much more limited...In order to bring inflation expectations firmly back to 2% in the advanced countries, where we'd like to see it, it's probably going to be necessary to have some overshooting of the 2% level..."

And if that wasn't telling enough here is a striking excerpt from a paper prepared by Adair Turner who is a member of The Bank of England's Financial Policy Committee, which supports my contention that central banks are exploring the option to directly finance government spending. From the Wall Street Journal:

"One option is for central bankers to overtly finance increased budget stimulus with permanent increases in the money supply. Japan will be forced to use such 'monetary financing' within the next five years and the policy should become a normal central bank tool for all economies facing stagnation."

We now have the all conditions in place for an unprecedented breakout of worldwide stagflation; secular economic stagnation, insolvent governments and central banks that are willing to enable a humongous increase in deficit spending by permanently monetizing that debt. Sadly, the fiscal and monetary conditions for global economic chaos have now been set in stone. It's only a matter of time. And unfortunately, that time is short.