Thursday, February 26, 2009

The bottle Imp

There was a story I read when I was younger, a short story by Robert Louis Stevenson. The story is about a working class native of Hawaii, Keawe, who buys a strange bottle from a sad, elderly gentleman who credits the bottle with his wealth and fortune, and promises the imp in the bottle will also grant Keawe his every wish and desire.

Of course, there is a catch — the bottle must be sold at a loss, i.e. for less than its owner originally paid, or else it will simply return to him. The currency used in the transaction must also be in coin (not paper currency or check). The bottle may not be thrown or given away. If an owner of the bottle dies without having sold it in the prescribed manner, that person's soul will burn for eternity in Hell.

The bottle was said to have been brought to Earth by the Devil and first purchased by Prester John for millions of dollars; it was owned by Napoleon and Captain James Cook but each sold it. At the time of the story the price has diminished to eighty dollars, and declines rapidly to a matter of pennies.

The problem here is that as the price approaches a penny, it will become harder and harder to sell the bottle, as the buyer will be in fear of being left holding the bag.

This tale reminds me of our current national debt. As our debt increases, the interest payments will balloon. They can only get so large before default is inevitable. At that point, anyone in possession of a US bond will be stuck with worthless paper. Because of this, the returns for these bonds will have to increase, so as to entice people in taking the risk of buying them, which will make the interest payments higher, thus making the end that much closer.

I wonder when the Imp will win...

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