Another financial meltdown on the horizon?

And you thought that last global financial crisis was bad.

A report issued on Sunday by the Bank for International Settlements (BIS) warns that policymakers have failed to address the root problems that caused the 2007-2008 financial meltdown. Instead of taking a long-term perspective aimed at increasing real economic productivity and output — the kind that actually benefits people by raising living standards — government officials have sought to pump up the numbers through monetary and fiscal stimulus.

As a result, we now have an alarming disconnect between the performance of global equity markets, which are booming, and an underlying world economy that is merely limping along. While major stock exchanges around the world have experienced spectacular returns — Standard & Poor’s 500 Index went up 30 percent last year — real-world economic growth came in at a meager 3 percent for the first quarter of 2014.

The BIS annual report packs a punch because the organization behind it commands the respect of the world’s central bankers. Based in Basel, Switzerland, the BIS is essentially the bank for central banks; it serves as a hub for gathering and analyzing the data provided by its 58 member central banks and performs in-depth research leading to broad policy recommendations.

When the BIS chastises policymakers for masking structural deficiencies and long-run misallocations of economic resources by resorting to the quick monetary fixes of quantitative easing and zero-interest rates — well, it should get their attention. And when the report suggests that short-term policy responses to the last crisis may be “creating a bigger one down the road,” the red lights should start flashing.

Is Federal Reserve Chair Janet Yellen taking note? In combination with last Friday’s news, published in The Wall Street Journal, that not only stock exchanges but a whole slew of world financial markets are rallying in unison for the first time in 20 years, it should give her pause. Six closely tracked gauges measuring the price rise for gold and other global commodities, as well as stocks and bonds, show that markets are giddy with the expectation that the Federal Reserve, the European Central Bank and Bank of Japan will keep interest rates unnaturally low well into the future.

Can you say bubble, anyone?

It’s a word that should strike terror into the heart of any central banker. Yet, the balm of rising returns to wealthy investors — who are hardly complaining to government officials — is smoothing over the fear of fomenting the next crisis. Even the increasing social tension over income inequality, which is greatly exacerbated by the effects of loose monetary policy, has not proved sufficient to break into the political realm as a rallying cry for fundamental monetary reform.

Perhaps the lure to governments everywhere of being able to finance spending with debt issued at an interest rate far lower than would be determined by free market forces blinds the eyes of policymakers to an impending economic disaster. What does it matter that government overindulgence is financed on the backs of ordinary savers, who receive next-to-zero returns as the reward for sacrificing consumption today to responsibly put money away for tomorrow?

If the economic arguments for taking action to prevent the next global financial meltdown do not compel central bankers to change their ways — or force government officials to acknowledge their complicity in fueling the next round of unemployment and despair — then it may be time to start pressing the moral case for sound money.

What candidate out there is prepared to affirm that another global financial crisis is likely in the making — and could well take place on the next U.S. president’s watch? To ignore this threat is to pretend that a repeat, or worse, of what the world has gone through since the last financial collapse would not prove fatal to democratic capitalism.

The task falls to America to deal with this latest global challenge; it is our dollar that dominates financial markets worldwide, after all, and our central bank that effectively sets global monetary policy. Whether our vision for a world based on free markets and free people can survive yet another crushing economic blow remains to be seen.

Shelton is a senior fellow at the Atlas Economic Research Foundation and co-director of the Sound Money Project.