Financial instability around the world has put the entire global economy at risk, says George Magnus, a senior economic advisor at UBS.

“It is a crisis of capitalism, because our economic model and policy settings can’t produce sustainable growth, adequate income formation, or employment creation,” Magnus writes in a report obtained by CNBC.

“We have lost the housing, financial services and credit creation growth drivers and been left with excessive levels of personal and government debt to unwind, a dysfunctional financial system, and weak labor markets.”

Problems abound in both the private and public sectors, Magnus says.

“The private sector has no choice but to deleverage, exacerbating the economic impact of the loss of past growth drivers,” he argues.

“Untimely financial attrition in the public sector, therefore, is going to add to the economic predicament.”

Governments need short-term moves to spark growth and long-term policies to shrink their onerous debt burdens, Magnus says. “President Obama recently proposed the former. But the U.S. lacks the latter, while the U.K. and others have the emphasis the other way round.”

The world has a case of "deficit attention disorder," he says

Others are worried about the global economy too, especially in light of Europe’s debt woes.

"This crisis [in Europe] has the potential to be a lot worse than Lehman Brothers," hedge fund legend Georg Soros tells The New York Times, referring to the U.S. investment banks’ 2008 failure.