You often hear me harping on the dangers of too much debt, and I keep my eyes peeled for significant work that backs up my concerns. In today’s Outside the Box good friend Dr. Lacy Hunt of Hoisington Investment Management gives us more ammunition to take on those who just don’t seem to get that the endless piling up of debt is not a sustainable way to run an economy.

The most striking feature of the US economy’s performance in 2015, according to Lacy, was a massive advance in nonfinancial debt that kept the economy stuck in the doldrums of subpar growth. US nonfinancial debt rose 3.5 times faster than GDP last year. (Nonfinancial debt is the sum of household debt, business debt, federal debt, and state and local government debt.)

Lacy points out unfavorable trends in each component of nonfinancial debt:

Household debt:

Delinquencies in household debt moved higher even as financial institutions continued to offer aggressive terms to consumers, implying falling credit standards. Furthermore, the New York Fed said subprime auto loans reached the greatest percentage of total auto loans in ten years. Moreover, they indicated that the delinquency rate rose significantly.

Business debt:

Last year business debt, excluding off balance sheet liabilities, rose $793 billion, while total gross private domestic investment (which includes fixed and inventory investment) rose only $93 billion. Thus, by inference this debt increase went into share buybacks, dividend increases and other financial endeavors…. When business debt is allocated to financial operations, it does not generate an income stream to meet interest and repayment requirements. Such a usage of debt does not support economic growth, employment, higher paying jobs or productivity growth. Thus, the economy is likely to be weakened by the increase of business debt over the past five years.

Federal debt:

U.S. government gross debt, excluding off balance sheet items, gained $780.7 billion in 2015 or about $230 billion more than the rise in GDP….

The divergence between the budget deficit and debt in 2015 is a portent of things to come. This subject is directly addressed in the 2012 book The Clash of Generations, published by MIT Press, authored by Laurence Kotlikoff and Scott Burns. They calculate that on a net present value basis the U.S. government faces liabilities for Social Security and other entitlement programs that exceed the funds in the various trust funds by $60 trillion. This sum is more than three times greater than the current level of GDP.

State and local government debt:

State and local governments … face adverse demographics that will drain underfunded pension plans…. The state and local governments do not have the borrowing capacity of the federal government. Hence, pension obligations will need to be covered at least partially by increased taxes, cuts in pension benefits or reductions in other expenditures.

Lacy adds this note on total debt, which includes nonfinancial, financial, and foreign debt:

Total debt … increased by $1.968 trillion last year. This is $1.4 trillion more than the gain in nominal GDP. The ratio of total debt-to-GDP closed the year at 370%, well above the 250-300% level at which academic studies suggest debt begins to slow economic activity.

Lacy makes the key point that overindebtedness impairs monetary policy, not just in the US but globally:

The Federal Reserve, the European Central Bank, the Bank of Japan and the People’s Bank of China have been unable to gain traction with their monetary policies…. Excluding off balance sheet liabilities, at year-end the ratio of total public and private debt relative to GDP stood at 350%, 370%, 457% and 615%, for China, the United States, the Eurocurrency zone, and Japan, respectively…. The debt ratios of all four countries exceed the level of debt that harms economic growth. As an indication of this over-indebtedness, composite nominal GDP growth for these four countries remains subdued. The slowdown occurred in spite of numerous unprecedented monetary policy actions – quantitative easing, negative or near zero overnight rates, forward guidance and other untested techniques.

Read it and think about this, gentle reader. We’re digging a great big hole that is likely to cave in on us before we manage to claw our way back out of it. We need to “wargame” how we respond in our personal lives. That is going to be a big focus of my letters in the coming months.

Lacy’s firm, Hoisington Investment Management Company (www.Hoisingtonmgt.com), is a registered investment advisor specializing in fixed-income portfolios for large institutional clients. Located in Austin, Texas, the firm has over $5 billion under management and is the sub-advisor of the Wasatch-Hoisington US Treasury Fund (WHOSX).

My days continue to be full of information downloads, phone calls, decisions. Probably not unlike yours. Am I the only one that feels that in a world where we have ever more tools that are supposed to simplify our lives, our lives are becoming more complex? Time seems to be a dwindling resource.

But I really can’t complain because it’s a fascinating complexity to explore. I have roughly 120 people, sorted into various sized groups, doing research on nearly two dozen topics dealing with the future that we will cover in the new book. The groups are beginning to get their research and outlines for the chapters back to me, and overall I’m quite impressed with what I’m reading. We’re talking about 1000+ pages of dense research and links to other articles. As I was thinking about the design of particular chapters and assigning groups to research them, I had a general idea of the direction in which things would go. More often than not, though, I had little idea of the complexity (there is that word again) and the scope of information that the research on each topic would reveal.

It is truly a mind-expanding experience to try to get your head around how the world will change in the next 20 years. I glibly say in speeches that the world is going to change more and faster in the next 20 years than it did in the last 100 years; but when you begin to contemplate the dozens of different areas in which change is going to happen – and not just the technological but the sociological and geopolitical implications of the change – and then, on top of all that, try to think about how all that will impact our investments, it becomes a bit daunting.

Don Quixote comes to mind as I face this task. But I’m going full tilt at the windmill anyway. I hope you’re having a great week, too.

Your trying to solve a very complex puzzle analyst,

John Mauldin

John Mauldin is editor of Mauldin Economics' Outside The Box.

This article was originally published at Mauldin Economics.