ALBERT EDWARDS: The Fed 'has allowed an Orc-like monster to incubate, hatch and emerge into the sunlight, snarling and ready to do battle.'

Albert Edwards has central banks in his sights again.

Societe Generale's bearish strategist wrote a note to clients Thursday going back to what he calls, "my favorite pastime - kicking the Fed."

This time Edwards said that the Fed and other central banks have waited too long to raise interest rates, allowing companies to go on a "credit binge" building up a bubble of unsustainable debt that is primed to pop when rates are hiked.

Here's Edwards:

"The Fed has finally summoned up its courage and looks set to raise rates next month. It is, however, already too late. Having delayed way beyond the point when it might typically have raised rates in previous cycles, it has allowed an Orc-like monster to incubate, hatch and emerge into the sunlight, snarling and ready to do battle. Free Fed money has led to an unprecedented corporate credit binge of excess spending, especially on share buybacks. This is even bigger than it was at the time of the 2000 technology and telecom bubble. The rotten fruit of the Fed's seemingly innocuous inaction will now be clear to onlookers as it is ripped to shreds on the battlefield by the powerful credit monster. The global economy will be thrown into chaos."

Edwards said that the Fed is close to raising rates mainly because of the recent strength of wage growth. He pointed out that real-average-hourly earnings have been rising for some time. Finally, the headline number is catching up to the underlying trend, thus spurring the Fed into action.

The problem, according to Edwards, is that since the Fed took so long to raise rates, companies have been able to amass large mounds of debt, all while shrinking their margins and profits due to unit labor inflation and "evaporating pricing power."

"With company revenues also declining this margin squeeze fatally undermines corporate profits and is central to our conviction that the US economy will be driven back into recession," wrote Edwards. "And in a typical recession, where corporate profits fall sharply, what the corporate sector does not want is too much debt oh dear, too late!"

Edwards says that bank lending has taken off without the Fed increasing interest rates as corporations spend mounds of "free money" on buying back their own shares at a historic rate.

Edwards again:

"On a top-down basis the Fed?s Z1 Flow of Funds data shows corporate debt borrowing at an $674 billion annual rate, closing in rapidly on the all-time borrowing splurge of 2007! Once again, companies have chosen to waste their money buying their own shares at top-of-the-cycle valuations! We are nicely tee-ed up for another crisis."

Edwards acknowledged that he wasn't representing the consensus.

"Finally I don?t mind being a lonely voice in the wilderness," he concluded. "I occasionally find other lost bears roaming the tundra and we go off to sip tea and compare notes which no-one in the real world seems to have the time or inclination to look at."