Monetarists across the world have warned that the International Monetary Fund and the Bank for International Settlements are making an historic error by calling for a withdrawal of emergency stimulus before the global economy has fully recovered.
The two watchdogs launched broadsides against central bank largess last week. The BIS -- the forum of central banks -- was particularly blunt, seeming to imply that quantitative easing "does not work".
Critics say this risks undermining the credibility of radical measures when more may yet be needed. They fear central banks could repeat the mistake made in 1937 when the Federal Reserve lost its nerve and tightened too soon, tipping America back into depression.
"The BIS and the IMF are deeply misguided and risk doing the world a grave disservice. The biggest threat right now is irrational fear of bubbles among central banks," said Lars Christensen, a monetary theorist at Danske Bank.
"How can they criticize the Bank of Japan for pulling the country out of 15 years of deflation and the longest asset price collapse in modern history?"
Mr Christensen said deflationary forces are stalking the global economy, making it essential to offset budget cuts with monetary stimulus. The US is tightening fiscal policy by 2pc of GDP this year, the most in half a century.
Columbia Professor Michael Woodford, America's leading monetarist, told a London forum recently that the global authorities must not repeat the mistake made by the Bank of Japan when it drained money too fast, thinking the economy was safely out of the woods. "All this talk of exit strategies is deeply negative," he said.
A Japanese official said his government will have firm words with the BIS and the IMF, since the criticisms implicitly question the wisdom of premier Shinzo Abe's reflation strategy -- deemed a success so far in Japan.
While stock markets are booming, global recovery has not yet reached "escape velocity", and remains at risk of stalling. The Dutch CPB index of world trade contracted by 0.7pc in February. Commodity prices have been sliding since September, a sign of potential deflation.
The BIS warned against "ever more monetary policy activism" to keep the global economy afloat. It called on the US, Britain, Japan, and the eurozone, to restore interest rates to normal levels "sooner rather than later."
"If a medicine does not work as expected, it's not necessarily because the dosage was too low. Maybe instead the course of treatment should be reconsidered," said the bank's chief Jaime Caruana.
The BIS enjoys huge prestige. It was the only major institution to warn persistently before 2008 that credit excess threatened to trigger a global crisis. The bank's monetary veteran Claudio Borio is esteemed by specialists as one of the world's most brilliant economists.
Mr Caruana said central bank largesse is distorting the financial system and storing up trouble for the future. It is also letting governments "kick the can down the road" and delay reform.
Similar arguments were made by the IMF in a working paper on "Unconventional Monetary Policies". While concluding that emergency action had prevented a deeper downturn, it said potency is "diminishing", and side-effects are becoming worse.
There are signs of a "mispricing of credit risk", a euphemism for asset bubbles. The longer it goes on, the harder it will be for central banks to extricate themselves. The IMF said losses from soaring bond yields -- and therefore falling values -- could reach 7pc of GDP for the Bank of Japan, 6pc for the Bank of England, and 4pc for the Fed.
"I am totally bewildered by what the BIS and the IMF are saying," said Tim Congdon from International Monetary Research. "There is no sign that inflation is out of control, and US house prices are far from their peak. QE has been necessary to stop the M3 quantity of money falling, which could do great damage. The IMF has departed from its monetary tradition," he said.
Yet there are clearly serious problems with the way QE is working. "We see bubbles everywhere," said Bill Gross from the bond fund PIMCO.
While the MSCI index of developed world equities has risen 34pc since central banks turned the spigot back on last summer, there has been little trickle down to ordinary people. The wealth gap is growing wider. Professor Woodford said it may be necessary to break the ultimate taboo and deploy QE to fund government projects, injecting stimulus directly into the veins of the economy.
Fed hawks have long been demanding an end to QE3, running at $85bn a month. Some doves are now joining the chorus. San Francisco Fed chief John Williams said the bank could start winding down stimulus "as early as this summer" and hopes to halt bond purchases by the end of the year.
In February the Fed published a paper "Crunch Time" by former governor Frederic Mishkin warning that the Fed's capital base could be wiped out "several times" once yields rise. It said the risks of QE are growing, with trouble compounding fast if it continues into 2014.
Whether the Fed really will start to taper off QE soon is unclear. Economic growth may have slowed to 1.5pc this quarter, close to the Fed's "stall speed" indicator. Core PCE inflation has fallen to 1.1pc.
New housing starts fell 16pc in April. Unemployment claims have spiked again. The 'Philly' and 'Empire State' indexes for manufacturing point to contraction. Capital Economics said it is "jumping the gun" to talk of Fed exit this year, a view echoed by Goldman Sachs.
Ultimately the Fed decision to taper off QE will be decided by chairman Ben Bernanke, his deputy Janet Yellen, and New York Fed chief Bill Dudley. Mr Bernanke will tip his hand in testimony to Congress next week.
Veteran US investor Warren Buffett says the day Mr Bernanke signals a retreat from QE will be "the shot heard around the world". Euphoric markets are clearly betting that he will not do so soon.