The Federal Reserve's massive bond buying and near-zero-interest-rate monetary policy has set up the stock market for a big fall, said Jim Grant, founder and editor of Grant's Interest Rate Observer.
"My fear is because that interest rates are suppressed, therefore earnings are inflated," he told CNBC's "Squawk Box" on Monday. "So when rates go up … the 'hall of mirrors' is shattered and we look at each other and see what actually is real rather than what the Fed wants us to believe."
If it were up to him, Grant said, the Fed would not have intervened at the time of the 2008 financial crisis because the markets and wages should have been given a chance to hit rock bottom.
"What happens in a capitalist economy when there is not intervention?" he asked. "Prices get low enough to invite buyers to come in and seize that value."
Besides artificially increases stocks, Grant said that Fed intervention has been counterproductive to economic growth. "We have been living through a very persuasive demonstration of futility of intervention to solve a recession."
"It is now year six of this 'monetary improv' … [and] we're making it up as we go along," he added.
Using a baseball metaphor, Grant said: "We don't know exactly day-to-day where the strike zone is … how many strikes you get … nor what the distance is from home plate to first."
"Sometimes they change the rules after the game is over," he added.
—By CNBC's Matthew J. Belvedere. Follow him on Twitter @Matt_SquawkCNBC.