The American credit cycle is at a dangerous point

The celebrated tome “Capital in the Twenty-First Century”, by Thomas Piketty, a French economist, runs to 204,000 words—longer even than Homer’s “Odyssey”. But the book’s can be distilled to a single, three-character expression: r > g. As long as “r”, the real rate of return to capital, exceeds “g”, the real rate of economic growth—as Mr Piketty calculated it did over the course of the 20th century—then inequality will supposedly widen.The simplicity of the message won Mr Piketty widespread acclaim. It also spawned a resurgence in the popularity of economic expressions. An influential one, i > g, is a variation on the Piketty rule. It applies when nominal interest rates (or risk-free returns) exceed nominal growth. The troubling conclusion from this expression applies to debt. In an i > g world, growth in the revenues, wages or tax receipts that a debtor earns will be slower than the interest accumulating on their borrowing, meaning have the potential to explode.