Lack of sleep, especially dream sleep can have serious consequences including dysfunction and even psychosis. You describe a very serious situation when you suggest that sometimes there is neglect in taking care of a child. This is a very dangerous situation when a child lacks proper adult supervision. I cannot tell you what to do, but morally, there is a responsibility to report this situation to the child welfare authorities. You can get the number to call the protective services from the National Child Abuse Hot line, see: www.childhelp.org/get_help , or you can call information for you state protective agency service. If you wish you can do it anonymously. Please follow up on this before something tragic occurs. Now that I have addressed the most serious situation. The individual needs a thorough psychiatric evaluation as the deteriorating symptoms you describe maybe indicative of a serious mental illness which requires immediate treatment.
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It is very difficult to say without a great deal more information. But if I were forced to guess i would guess as either severe depression , psychosis nos (not otherwise specified) or schizophrenia. Again there is little validity in this diagnopstic impression due to a severe lack of information. Allow me to stress the need to preserve the safety of the child if it is neglected.