Despite market volatility and a debt timeout, liquidity-driven growth will end when the Fed reverses its monetary policy—and that end is now in the horizon. Recently, Dallas Federal Reserve President Richard Fisher noted that when to dial back is the key because stopping would be "too violent for the marketplace." In turn, the Fed Chairman Ben Bernanke warned that holding interest rates too low for too long has its risks and suggested that the Fed could slow bond purchases. Afterwards, the markets responded as one might expect. But this is just the prelude. When the Fed shall move from words to actions, the repercussions will be felt worldwide and this is how it's going to happen.

When the process of unwinding will eventually begin, it is likely to occur in three ways outlined by Bernanke and New York Fed chief William Dudley. However, each comes with potential pitfalls. The Fed could stop reinvesting the proceeds of maturing securities. This approach, however, requires a long time to reduce the huge balance sheet. The Fed could also raise short-term interest rates. This way it could reduce potential inflation pressures, but the approach is not appropriate as long as growth lingers and disinflation rather than inflation is the primary challenge. Finally, the Fed could gradually sell mortgage-backed and Treasury securities. However, when Bernanke recently suggested the possibility of such an option, it was enough to cause volatility in the markets.

The simple reality is that moving too fast or too slow could severely disrupt the lingering recovery and drive the U.S. economy into recession. Meanwhile, even as the markets keep breaking all-time records, the U.S. debt continues to soar because there is no debt adjustment plan. While the Fed is considering its options, U.S. government debt has soared to more than $16.8 trillion, which exceeds the value of U.S. GDP by some $1.1 trillion. That translates to $148,000 debt per taxpayer and over $53,200 debt per person in America.

The United States hit the current debt limit of $16.4 trillion on December 31, 2012. Next day, Washington agreed on a "mini-deal," which deferred difficult decisions. Meanwhile, the Treasury Department resorted to "extraordinary measures," to avoid default. Usually, this can provide a 6-8 week timeout. However, Congress deferred the deadline by a law that suspended the debt ceiling until May 18.

Initially, markets expected the Treasury Department to return to its accounting wizardry, which could have given Congress another 6-8 weeks until early August. In reality, the timeout will prove a bit longer, thanks to the Treasury's increased tax revenue in April, the initial impact of the automatic spending cuts, and the impending payback by the mortgage financing giants Fannie Mae and Freddie Mac.

As a result, the U.S. debt debate is likely to intensify amidst rising market volatility, the highly anticipated German elections and Italy's political crisis in Europe, and increasing uncertainty in Japan. When the Fed will finally revise the course, other central banks will follow in the footprints. That's when the liquidity masquerade will end.

The most difficult days of the post-crisis period are not behind, but still ahead.