The addiction to debt-fueled spending among governments and consumers could bring about another major financial crisis, a top economist warned in an op-ed for the International Monetary Fund (IMF).

In the article, Princeton Economics Professor Atif Mian called for the world to come to terms with a “massive debt supercycle” which, if not addressed, could bring advanced countries to their knees.

"The buildup in debt that led to the 2008 crisis stemmed from deep structural imbalances in the economy. Those imbalances persist, as do the dangers associated with them,” he noted

The debt supercycle

From 1960 to 1980, total debt accounted for 140% of U.S. GDP, but it has since doubled to 300%, according to Mian. The trend is consistent across the globe.

The growth of debt, in fact, is so vast that it even surpasses the debt accumulation during the 2008 financial crisis.

"In fact, not even the Great Recession of 2008—which in many ways was a result of the excesses of borrowing—could put a dent in debt’s relentless upward march," Mian wrote.

Even worse, most of this new debt has been profoundly unproductive—leading to a glut of savings among the wealthy and stagnant investments as a share of GDP since the 1980s.

“Debt supercycles reflect problems on the demand side, with rising inequality and the saving glut of the rich, and problems on the supply side, with a highly restrictive investment response despite extremely low interest rates and abundant financing,” Mian said.

Another dangerous by-product of growing debt is that it reduces demand in the long run due to a phenomenon called “indebted demand.”

In the long run, borrowers—both governments and consumers—can only repay this debt by reducing their spending, placing the economies on the path of stagnant growth."

Kicking the can down the road

Governments in the developed world have so far been able to keep growth afloat by borrowing money at low rates.

However, this approach appears increasingly "politically risky" as central banks have been forced to hike rates to contain rising inflation, threatening the stability of financial markets.

“We have at best been kicking the proverbial can down the road, and at worst further impeding eventual resolution,” writes Mian.

All this highlights the need for long-term changes in the way countries incentivize economic growth, in Mian’s view.

These could include raising taxes on the very wealthy, removing restrictions on new construction, promoting competition, and boosting public investment.

“Nature requires balance—between predator and prey in the jungle, between the push and pull of planets in orbit, and so on,” Mian said.

“Loss of this balance has led to a massive debt supercycle that threatens the global economy. Breaking that cycle is one of the most pressing challenges of the 21st century.”