The Fed has created a huge global bubble: Stockman

The actions of the Federal Reserve have created a massive bubble not just in U.S. stock prices, but in a variety of assets all across the world, contends David Stockman, who served as the director of the Office of Management and Budget under Ronald Reagan.

"The Fed is exporting this lunatic policy worldwide," Stockman said, referring to the Federal Reserve's asset-purchasing program. "Central banks all over the world have been massively expanding their balance sheets, and as a result of that there are bubbles in everything in the world, asset values are exaggerated everywhere."

"It's only a question of time before the central banks lose control, and a panic sets in when people realize that these values are massively overstated," he said.

(Read more: Good news: Bubble concern is at a 5-year high)

The issue, says Stockman, is that central banks around the world have followed the Fed's dovish lead "for either good reasons of defending their own currency and their trade and their exchange rate, or because they're replicating the Fed's erroneous policies."

Either way, "Central banks have been massively expanding their balance sheets," which has reduced interest rates on government bonds, and increased the amount of money chasing a fixed set of assets.

Stockman, who is the recent author of "The Great Deformation: The Corruption of Capitalism in America," says that it takes little digging to discover that assets are overextended.

"This is a financial asset bubble, and you can see it in the valuations if you want to look at it," Stockman said on Tuesday's episode of "Futures Now." "The Russell 2000 is hitting another peak today—it's trading at 75 times reported trailing earnings. That makes no sense. It's up 43 percent in the last year, but earnings of the Russell 2000 companies have not increased at all. It's up 230 percent from the bottom. Mainstream America is not doing that well."

In fact, Art Cashin, director of floor operations for UBS, made a similar point on the same episode of "Futures Now."

"This market, this whole economy has kind of a split personality," Cashin said. "Wall Street is making a record, and yet your brother-in-law can't find a job."

(Read more: Art Cashin: Here are the 3 biggest risks to stocks)

Yet while Cashin doesn't call this a Fed-induced bubble, crediting the situation instead to "the miracle of managers in all the major corporation doing more with less," Stockman warns that the end of the bull run will be very painful.

"This is dangerous. We're in a dangerous financial system that has been more or less wrecked by central banks and their policies," Stockman said, adding that "I haven't seen too many bubbles in history" that haven't ended violently.

—By CNBC's Alex Rosenberg. Follow him on Twitter: @CNBCAlex.

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