While massive central bank easing has created huge pools of liquidity in the financial systems of developed economies in recent years, liquidity in their financial markets has shrunk, notes economist Nouriel Roubini of New York University.

And that paradox carries ominous implications, he writes in an article for Project Syndicate.

"Policy interest rates are near zero in most advanced economies, and the monetary base has soared. This has . . . lifted many asset prices," Roubini points out. The Federal Reserve's balance sheet now totals a whopping $4.5 trillion.

"And yet investors have reason to be concerned," he explains. Roubini cites the May 2010 "flash crash" for stocks and the October 2014 flash crash for Treasurys as examples.

"This combination of macro liquidity and market illiquidity is a time bomb," he warns.

"The longer central banks create liquidity to suppress short-run volatility, the more they will feed price bubbles in equity, bond and other asset markets. As more investors pile into overvalued, increasingly illiquid assets, the risk of a long-term crash increases," Roubini adds.

"Macro liquidity is feeding booms and bubbles; but market illiquidity will eventually trigger a bust and collapse."

Meanwhile, John Hussman, president of Hussman Investment Trust, warns that the end result of Fed easing won't be pretty for the economy and financial markets.

"The Fed has now created the third financial bubble in 15 years," he writes in a market commentary. "Focusing on two variables — inflation and unemployment — the Fed has missed the most important consideration: the risk to financial stability."

That's what happened in last decade's housing bubble, and "this mistake will ultimately end just as tragically" both for the economy and financial markets, Hussman states.

As for stocks, "our concerns remain extremely high due to the combination of obscene valuations and unfavorable market internals," he explains. The S&P 500 index carried a price-earnings ratio of 21.46 as of May 29, up from 18.26 a year ago, according to Birinyi Associates.

Don't count on a delay in Fed rate hikes boosting stocks, Hussman says. "Examine the worst market collapses in history, and you'll often find the Federal Reserve easing the whole time," he writes.

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008. Fed Chair Janet Yellen said last month that the central bank will likely begin raising rates this year.

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