Rob Arnott’s keynote session at the ETF Virtual Summit on Wednesday focused on the coming 3-D hurricane—debt, deficit and demography. After hearing Arnott’s bleak assessment, he might consider adding a fourth “D” for depression.

The chairman and founder of Research Affiliates and the pioneer of fundamental indexing joined host Tom Lydon for a short interview about his economic and market outlook and specific strategies for 2013.

Rob ArnottBeginning with the country’s debt situation, Arnott (left) noted, “We are a family that measures our success by how much money we spend. We have a GFP, gross family product. It feels great to go out and buy a car we can’t afford and a house we can’t afford. Until the bill comes due all is well. Then it all falls apart.”

He added that in 2011, U.S. debt reached 100% of GDP, but if its Social Security liability and Medicare and Medicaid liabilities are factored in, the debt rises to 600% of GDP.

“If you owe six times your personal income, logic dictates that it is not sustainable,” Arnott said.

From an investment standpoint, he said it’s best to realize “what must happen will happen and what cannot happen will not happen. You should evaluate how you get from point A to point B in that frame of mind, meaning taking the path of least resistance.”

Lydon interjected to ask him about inflation, noting the government doesn’t appear to be too concerned with the issue. Is there any truth to it?

“No,” Arnott said. “Inflation peaked at 14% in 1980. Today, that number would be the equivalent of around 10%, only because they’ve changed the way in which they calculate the number. Who really believes their personal inflation rate was under 2% last year? Their masking the real problem, and it gives a false sense of security.”

Turning to the last “D,” demography, Arnott pointed out (with some frustration) that in 2012, for the first time in history, the population of senior citizens grew faster than the population of working-age adults.

“I didn’t see this reported anywhere in the media. I encouraged them to do it, and I was looking for it, but didn’t see it anywhere. The 1:1 ratio we currently have goes to 10:1 in 10 years in the wrong direction.”

“We’re experiencing the early gusts of this 3-D hurricane,” he concluded. “Japan is getting it now, and Europe is closer than we are. Forward-looking, bonds and stocks will yield 2%. GDP growth will be closer to 1%. None of this is dangerous; it’s still growth. What is dangerous is an expectation of having more, and receiving less.”

Read Money Floods Into Stocks via ETFs as Industry Hits 20-Year Mark at AdvisorOne.