What you just described is what I call a credit bubble.
Only you forgot the part about the banking system collapsing and the deflationary Depression (with a capital D).
Periods of prolonged credit expansion and inflation are followed by periods of credit contraction and deflation.
Total Credit Market Debt as % of GDP
Bingobazza does a good job explaining it.
To play devil's advocate, if borrowing money to chase 20% returns is so easy, then why is the most successful investor of all time Warren Buffett sitting on 50 Billion in cash?
Of course, I could be mistaken. You may have discovered the perpetual money making machine.