The Fed Fuels Overcapacity

"The data show companies have just suspended capital spending in the hope the cycle turns," he said. "They haven't gone through significant balance sheet repair." (Overall capital spending fell at an annualized rate of 4.8% in the first quarter and is down 14% from late 2000, The Wall Street Journal reported.)

This is not to imply that every company that issues a convert is seeking a reprieve from the executioner. But clearly there is overcapacity in areas such as airlines, wireless and merchant energy, and these deals won't alleviate those conditions. Quite the contrary.

As General Motors (GM - Cramer's Take - Stockpickr) priced its colossal $17.6 billion offering last Thursday, which included a $4 billion convert, RealMoney.com contributor James Cramer wrote: "GM gets to live to lose money again."

Maybe this really is good for GM shareholders and pensioners, as Cramer declared. But where's the virtue in GM being able to extend its "triple zero" financing offer? Other automakers have been forced to mimic those incentives, cutting into the profitability of the entire sector even as demand is starting to wane.

"There's gross overcapacity [in autos] worldwide," said Hickey. "Somebody is going to go away, but not if they can float [nearly] as much debt as their market value, as in GM's case."

Cramer is a trader -- a "weatherman," by his own admission. His point was that there's currently more than ample demand -- thanks to aggressive monetary and fiscal stimulus -- for the supply of paper being issued by corporations. If supply were to overwhelm demand, Cramer will no doubt change his upbeat outlook. (Notably, he wrote a more critical piece Friday about the "unintended consequences" of this liquidity-driven environment.)

But others can only see the dangers in the Fed's policies, regardless of the boost financial markets have recently enjoyed.

"Mr. Greenspan keeps talking about deflation, but he created it and he's the one that keeps it going," said Hickey. "At some point you're pushing more debt on people with too much debt [and] it's not going to work. You might get a lift for a month or two but I'd say the market has already built in all this good news."