Last week the investment bank Lehman Brothers issued a warning to Asia's emerging markets: the United States may be dangerous to your recovery. The investment bank said the biggest threat to Asia's budding growth may come from a financial crisis sparked on American shores. It is a turnaround that surprised some of Lehman Brothers' economic architects who helped design a so-called early-warning system designed to sniff out looming crisis in emerging markets. When the analytical tool was applied to 15 economies worldwide, analysts discovered relatively benign conditions in emerging markets, with little chance of a 1997-type Asian financial crisis, according to Robert Subbaraman, Lehman Brothers' senior economist for Asia. But when many of the same metrics were applied to the US, the results were positive for several indicators that signal a financial meltdown may be nearing. 'Perhaps the biggest concern for emerging markets is some of the advanced countries, namely the United States,' Mr Subbaraman said. 'I think there has been a lot of concern and focus on the twin deficit problem, the high level of household debt, and the low savings rate. 'The concern is that the US has been an important driver of global growth for quite a while. It does have quite a few imbalances, and if this economy were to suffer a crisis, it would have very big effects on the rest of the world, particularly emerging markets, who export so much to the US.' Mr Subbaraman said one scenario was that the US dollar could decline dramatically to offset the trade imbalance. This, he says, would dramatically increase the price of Asian-made goods exported to the US, choking off demand and knocking back the Asian manufacturing boom. He cautioned that only a partial set of indicators was applied to US economic data, and that the readings were inadequate to draw any serious conclusions. Lehman Brothers describes its early-waning system, code-named Damocles, as an analytical framework designed to identify 'external disequilibria and vulnerabilities that may in certain circumstances develop into full-blown crisis.' The system uses 10 macroeconomic and financial indicators that were found to be generally accurate in forecasting crisis. In developing the system, the bank concentrated on the Asian financial crisis because it provided a text-book example of a currency blowout. When analysts applied the economic warning system to Asian economies excluding Japan, it flagged Hong Kong and Philippines as the biggest worry spots. Mr Subbaraman noted that Hong Kong's economy was recovering, but cautioned that the government had to address a large budget deficit with few policy options at its disposal. China ranked well, largely because of a closed capital account that protects it from the kinds of overnight capital flight that forced Thailand to abandon its currency peg in July 1997. He cautions investors the next financial blow-up will probably ignite in unexpected ways. 'Financial crises have demonstrated a remarkable ability to mutate and develop in a manner previously unforeseen,' Mr Subbaraman said.