Financial apocalypse: Ex BIS chief economist William White warns of epic debt tsunami worse than 2007

Global debts have built up to such an extend that the world is facing another financial crash, worse than the one in 2007-08, according to a leading monetary theorist. William White, the chair of the Organisation for Economic Co-operation and Development (OECD)'s review committee, has added to former 'doomsday prophecies' by financial analysts, saying that the world has to look "reality in the eye" about the economic situation.

Ahead of the World Economic Forum at Davos, White underlined the significance of the crisis in China for the world economy. "Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem too," he said.

White, the former chief economist at Switzerland-based Bank for International Settlements, raises concerns over the global economy after the Royal Bank of Scotland's credit team issued a "sell everything" statement, warning of plunging stocks and an oil price of $16 (£11, €15) a barrel in 2016.

"Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief," White told the Telegraph. "It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something."

These debts will result in Europe's creditors receiving the worst blow, according to the economist. With an estimated $1tn outstanding bad loans by European banks, the continent is increasingly vulnerable to China's performance.

"The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up," White said. "The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly."

Chinese impact

The doomsday predictions by various analysts come as the world keeps a close eye on China, which seems to be busting the myth of the everlasting emerging market.

In January, Chinese authorities confirmed what markets were long fearing. The country's economic growth hit a 25-year-low, at 6.9%, according to official figures. Analysts looking at proxy-data such as energy usage and demand for electricity fear this number is in reality closer to 4% growth. A Nikkei report in 2015 estimated China's economy was growing 5% annually.

The slowdown in China has weighed on commodity prices as well. A global oversupply is not being met by demand anymore, as the country's manufacturing sector is slowing down and therefore needs fewer commodities. This, in turn, is affecting commodity depending markets as well.

In September 2015, for example, Standard and Poor's gave Brazil's credit status a "junk" rating. The country's export value more than doubled since 2005 to $256bn and accounts for around 14% of Brazil's GDP. When exports fall, so does the country's economy.

"Like many other countries, including South Africa, Canada and Australia, Brazil is suffering from what is going on in commodities and, of course, also in oil," Sanjiv Shah, chief investment officer at Sun Global Investments, told IBTimes UK. "These prices have fallen hugely, with oil being worth half the price per barrel that it was a year ago."

Not everyone is as negative on the economic developments, however. Business tycoon Martin Sorrell said in August 2015, shortly after the first stockmarket crash in Shanghai that he considers himself "a raging bull in relation to China".

"China has been the biggest driver of the world economy," he told the BBC's Today programme. "They ain't done too bad with a five-year planned economy since 1985."