Massive government debts and eroded fiscal buffers since 2008 suggest global dominos await a single market crash.

Is another Great Depression on the horizon?It would be easier to dismiss these words from Nouriel Roubini, Marc Faber or other doom-and-gloom prognosticators. Coming from Christine Lagardes team, though, they take on a new dimension of scary.

The International Monetary Fund head isnt known for breathlessness on the world stage. And yet the IMF sounded downright alarmist in its latest Global Financial Stability report, stating that large challenges loom for the global economy to prevent a second Great Depression.

Even some market bears were taken aback. Why, asks Michael Snyder of The Economic Collapse Blog would the IMF use this phrase in a report that they know the entire world will read?

Perhaps because, unfortunately, the findings of other referees of global risks including the Bank for International Settlements hint at similar dislocations.

Ten years after the Lehman Brothers crisis, these worrisome warnings that will be explored in depth at this weeks annual IMF meeting in Bali. The tranquil setting, though, will offer few respites from cracks appearing in markets everywhere from Italy to China to Southeast Asia, where currencies are cratering like its 1998 again.

Potential flashpoints and a long line of dominos

Italy is the current flashpoint and the latest target of domino effect chatter in frothy world markets. Chinas shadow-banking bubble, and the extreme opacity and regulations that enable it, also came in for criticism. And, of course, the 800-pound beast in any room where global investors gather these days: Donald Trumps assault on world trade.

But the real worry is the health of foundations underpinning these and other risks.

As the BIS warned on Sept. 23, the global economy faces a potential relapse of the Lehman shock of 2008. Things look rather fragile, says BIS chief economist Claudio Borio. Equally worrying, he adds: Theres little left in the medicine chest to nurse the patient back to health or care for him in case of a relapse.

A similar connection of dangerous dots runs through the IMFs latest report. The big problem, says Malhar Nabar, deputy chief of IMF research, is the one that investors tend to ignore or explain away: how much of the Lehman fallout is still with us.

There are many countries, even today, that are operating below pre-crisis trends, Nabar says. And whats interesting is not just countries that suffered banking crises in 2007-2008 but also other countries outside of that epicenter that were affected through trade links or through financial links.

Increased inequality is one troubling side-effect. Yet Nabar highlights, possible long-lasting effects of the crisis on potential growth that might seem tangential to Wall Streets crash lower birth rates, lower fertility and even some evidence of slower technology adoption. All this, he says, can affect productivity growth and potential growth going forward.

There is no doubt that many of the official policy actions taken since 2008 seemed to have helped limit the harm. But the costs of those efforts are only beginning to get calculated.

2008 crisis measures cast long, dark shadow

Excessively loose monetary policies have exacerbated the widening inequality trends unfolding pre-Lehman crackup. At the same time, theres been, in the words of the IMF, a large accumulation of public debt and the erosion of fiscal buffers in many economies following the crisis point to the urgency of rebuilding defenses to prepare for the next downturn.

Yet all the diplomatic speak in the world cant sugarcoat the roughly $250 trillion crisis unfolding in slow motion. Thats the level to which the worlds debt burden ballooned since the Lehman crash. Thats 18 times Chinas annual gross domestic product.

And with official rates from Washington to Tokyo still at ultra-low levels historically, theres little ammunition to battle the next reckoning.

Italys debt woes are an obvious weak link. One reason: just as with US officials after 2008, Europe did more to treat the symptoms of its woes than address underlying causes.

So is Chinas unbalanced economy, one being trolled by US President Donald Trumps tariffs arms race. This years 6.4% drop in the yuan is raising eyebrows for good reason. For one thing, it coincides with a marked slowdown in exports, industrial production, fixed-asset investment and an 18% plunge in Shanghai stocks this year. For another, it raised the specter of sizable defaults on dollar debt, which would reverberate through the global economy.

And therein lies Asias problem.

Asias exposure

In general, the region has journeyed a long way since the darkest days of 1997 and 1998. Financial systems are stronger and governments are more transparent. Currencies are more flexible. Foreign-exchange reserves have been rebuilt. That leaves advanced economies from South Korea to Singapore reasonably well equipped to withstand fresh turmoil.

But there are cracks in the regions developing markets, as the ferocity of currency plunges in India, Indonesia and the Philippines show. Investors may argue theyve learned from past misstates, but still fall prey to herd mentalities.

Its an urgent wakeup call for Indias Narendra Modi, Indonesias Joko Widodo and Rodrigo Duterte of the Philippines to narrow current-account and budget deficits. Leaders also need to devise macroprudential firewalls against global contagion.

The problem for Asia: contagion could come as much from the West and its own backyard.

Trumps fiscal incompetence including a $1.5 trillion tax cut America didnt need could roil global rates and the dollar. A recent spike in 10-year yields to 3.2%, the highest in seven years, could be a bad omen. Trump, too, is publicly dueling with his hand-picked Federal Reserve chairman. And given Trumps legal woes, the odds of new tariffs or even military action to distract voters cant be ruled out.

Any new assault on China could devastate Japans reflation effort. True, epic Bank of Japan easing and a weaker yen boosted exports. It pushed Nikkei 225 index stocks to 27-year highs. Yet Asias No. 2 economy is in harms way if the US-China brawl trumps the regions key growth engine.

Even before most policy makers and financiers arrive in Bali this week, the IMF is signaling that global growth has plateaued. It downgraded output to 3.7% from 3.9%.

That not the end of the world, per se. But with trade battles intensifying and dormant old devils re-emerging, all bets could soon be off.

That is a lot more than depressing: its terrifying.

This article was published by Asia Times on the 9th of October 2018. William Pesek is a Bloomberg columnist based in Tokyo. He provides a range of articles on business.the economy and politics in Asia.