The Bank of International Settlements (BIS)'s most recent report says that the financial markets are experiencing euphoria even while investment remains weak.

"Financial markets have been exuberant over the past year, at least in the AEs [advanced economies], dancing to the tune of central bank decisions."

It's not hard to understand why that is happening.

Central banks, like the Federal Reserve, have followed a policy of suppressing interest rates. This, in turn, has encouraged investors to abandon traditional safer interest-paying investments and plunge into potentially higher-return, but riskier, stocks.

With interest rates so low, credit is cheap, and this pursuit of higher yield has also resulted in the prodigious use of leverage to possibly squeeze even more return in order to justify taking the gamble on equities.

It has been reported that even the activist investor Carl Icahn has said, "In my mind, it is time to be cautious about the U.S. stock markets."

Euro Pacific Capital's Peter Schiff, who correctly predicted the 2007 real estate bubble bursting, has been warning investors that the current valuations of equities is another bubble about to erupt.

The BIS describes the causes of the 2007 financial crisis as "a major financial boom developed against a background of low and stable inflation, turbocharged, as so often happens in past such episodes by financial innovation. Credit and prices soared, shrugging off a shallow recession in the early 2000s and boosting economic growth once more. Spirits ran high. There was talk of a Great Moderation — a general sense that policymakers had finally tamed the business cycle and uncovered the deepest secrets of the economy.

"The recession that followed shattered this illusion."

What is undeniable is that the Fed utterly failed in its primary duty to maintain price stability. Then again, price stability is something it has consistently been unsuccessful in achieving.

The central bank policies that failed in 2007 are failing again.

The government's policy, which they call quantitative easing, is nothing more that the slight-of-hand process of creating money out of thin air. It exacerbates the destructive boom-and-bust cycles rather than stabilizes the economy.

Economic growth comes from productivity. Pumping up in absolute terms asset prices but lowering the relative purchasing power of the currency is almost by definition what creates economic crises.

The private economy — the free-market — creates real productivity. Government only creates debt and taxes.

Never forget, the Fed is a creature created by political interests and is really just another bureaucracy. Any claim of it being independent of government is hogwash.

Like all other governmental bureaucracies, it uses vague but official-sounding obtuse language to justify its actions. Basically, it can best be understood as Orwellian or Alinskyite gibberish uttered to befuddle the public and cover a myriad misdeeds and malfeasance.

The BIS doesn't present any real solutions, but merely points out that the debt-dependent policies favored by the central banks must be adjusted.

Huge debt burdens, the BIS points out, tempts government to solve the current economic dilemma by a combination of inflation, financial repression and economic isolationism. All of which, in my opinion, damages our capitalist free-market economy and, for that matter, dramatically curtails personal liberties.

Its report is meant as a warning. Without a major policy adjustment, the global economy might be on an "unsustainable path."

As I read it, the current euphoria about investing in the U.S. stock market is most likely another dangerous market valuation bubble created by Fed to support overriding governmental political policies.

To Washington, D.C., and Wall Street, investors and taxpayers are sheep to be shorn.

In the uncertain world of today's politically charged economic environment, any investor should ask themselves one question: Do I want to bet my financial security on the perils inherent in the current stock market euphoria?