Merk Commentary
Ben in Luck

Axel Merk
Merk Hard Currency Fund
Posted Sep 22, 2010

Ben had served his master for seven years, so he said to him, master, my time is up, now I should be glad to go back home to my mother, give me my wages. The master answered, you have served me faithfully and honestly, as the service was so shall the reward be. And he gave Ben a piece of gold as big as his head. Ben pulled his handkerchief out of his pocket, wrapped up the lump in it, put it on his shoulder, and set out on the way home.

Comment: This story is an adaptation of Hans in Luck (also known as Brother Lustig; original German title Hans im Glück), a Brothers Grimm fairy tale. Our Ben had been handed the gold standard by the U.S. constitution. Having studied it extensively, Ben embarks on a journey. Read on…

As he went on, always putting one foot before the other, he saw a horseman trotting quickly and merrily by on a lively horse. Ah, said Ben quite loud, what a fine thing it is to ride. There you sit as on a chair, you stumble over no stones, you save your shoes, and cover the ground, you don't know how.

The rider, who had heard him, stopped and called out, hi, there, Ben, why do you go on foot, then.

I must, answered he, for I have this lump to carry home, it is true that it is gold, but I cannot hold my head straight for it, and it hurts my shoulder.

Ah… the Great Depression – what a burden it is to be on a gold standard….

I will tell you what, said the rider, we will exchange, I will give you my horse, and you can give me your lump. With all my heart, said Ben, but I can tell you, you will have to crawl along with it.

The rider got down, took the gold, and helped Ben up, then gave him the bridle tight in his hands and said, if you want to go at a really good pace, you must click your tongue and call out, jup. Jup.

Going off the gold standard relieved a huge burden from the U.S. economy and allowed nominal growth to resume. For extra credit, unbeknown to the Grimm Brothers, Ben wrote his doctoral thesis on the topic.

Ben was heartily delighted as he sat upon the horse and rode away so bold and free. After a little while he thought that it ought to go faster, and he began to click with his tongue and call out, jup. Jup.

We were in a goldilocks economy: growth and no inflation: we could kick it up a notch…

The horse put himself into a sharp trot, and before Ben knew where he was, he was thrown off and lying in a ditch which separated the field from the highway. The horse would have gone off too if it had not been stopped by a countryman, who was coming along the road and driving a cow before him.

Ooops, the housing bubble burst. The economy was jolted off its course. But there, on the side of the road, was Lloyd, a countryman from Golden Saxony, driving AIG, before him.

Ben pulled himself together and stood up on his legs again, but he was vexed, and said to the countryman, it is a poor joke, this riding, especially when one gets hold of a mare like this, that kicks and throws one off, so that one has a chance of breaking one's neck. Never again will I mount it. Now I like your cow, for one can walk quietly behind her, and have, over and above, one's milk, butter and cheese every day without fail. What would I not give to have such a cow. Well, said the countryman, if it would give you so much pleasure, I do not mind giving the cow for the horse. Ben agreed with the greatest delight, the countryman jumped upon the horse, and rode quickly away.

Ben drove his cow quietly before him, and thought over his lucky bargain. If only I have a morsel of bread - and that can hardly fail me - I can eat butter and cheese with it as often as I like, if I am thirsty, I can milk my cow and drink the milk. My goodness, what more can I want.

When he came to an inn he made a halt, and in his great concern ate up what he had with him - his dinner and supper - and all he had, and with his last few farthings had half a glass of beer. Then he drove his cow onwards along the road to his mother's village.

As it drew nearer mid-day, the heat was more oppressive, and Ben found himself upon a moor which it took about an hour to cross. He felt it very hot and his tongue clave to the roof of his mouth with thirst. I can find a cure for this, thought Ben, I will milk the cow now and refresh myself with the milk. He tied her to a withered tree, and as he had no pail he put his leather cap underneath, but try as he would, not a drop of milk came. And as he set himself to work in a clumsy way, the impatient beast at last gave him such a blow on his head with its hind foot, that he fell on the ground, and for a long time could not think where he was.

Oh my! AIG was not the healthy insurer we originally thought! AIG was a mess, its subprime exposures had seemingly morphed out of control...

By good fortune a butcher just then came along the road with a wheel-barrow, in which lay a young pig.

It’s Hank, the Treasury secretary with a wheel-barrow of taxpayer money. Blame the Grimm Brothers; we do not intend to infer that Hank is a butcher in any way. Though, it seems the reference to pork has persisted over the centuries....

What sort of a trick is this, cried he, and helped the good Ben up. Ben told him what had happened. The butcher gave him his flask and said, take a drink and refresh yourself. The cow will certainly give no milk, it is an old beast, at the best it is only fit for the plough, or for the butcher. Well, well, said Ben, as he stroked his hair down on his head, who would have thought it. Certainly it is a fine thing when one can kill a beast like that at home, what meat one has. But I do not care much for beef, it is not juicy enough for me. A young pig like that now is the thing to have, it tastes quite different, and then there are the sausages.

I’d much rather have taxpayer money clean up this mess…

Listen, Ben, said the butcher, out of love for you I will exchange, and will let you have the pig for the cow. Heaven repay you for your kindness, said Ben as he gave up the cow, whilst the pig was unbound from the barrow, and the cord by which it was tied was put in his hand.

You shall have TARP

Ben went on, and thought to himself how everything was going just as he wished, if he did meet with any vexation it was immediately set right. Presently there joined him a lad who was carrying a fine white goose under his arm. They said good morning to each other, and Ben began to tell of his good luck, and how he had always made such good bargains. The boy told him that he was taking the goose to a christening-feast. Just lift her, added he, and laid hold of her by the wings, how heavy she is - she has been fattened up for the last eight weeks. Whosoever has a bit of her when she is roasted will have to wipe the fat from both sides of his mouth. Yes, said Ben, as he weighed her in one hand, she is a good weight, but my pig is no bad one.

Meanwhile the lad looked suspiciously from one side to the other, and shook his head. Look here, he said at length, it may not be all right with your pig. In the village through which I passed, the mayor himself had just had one stolen out of its sty. I fear - I fear that you have got hold of it there. They have sent out some people and it would be a bad business if they caught you with the pig, at the very least, you would be shut up in the dark hole.

Elections are coming up and we need CHANGE - the policies in place will otherwise be your doom. There is even talk that you may be called in front of a congressional hearing…

The good Ben was terrified. Goodness, he said, help me out of this fix, you know more about this place than I do, take my pig and leave me your goose. I shall risk something at that game, answered the lad, but I will not be the cause of your getting into trouble. So he took the cord in his hand, and drove away the pig quickly along a by-path.

Let’s try a different tact – load the Federal Reserve’s (Fed) balance sheet up with mortgage-backed securities (MBS), guarantee the entire financial system – and while we are at it, the automotive industry as well…

The good Ben, free from care, went homewards with the goose under his arm. When I think over it properly, said he to himself, I have even gained by the exchange. First there is the good roast meat, then the quantity of fat which will drip from it, and which will give me dripping for my bread for a quarter of a year, and lastly the beautiful white feathers. I will have my pillow stuffed with them, and then indeed I shall go to sleep without rocking. How glad my mother will be.

You’ve got to see it this way: the more money we spend, the more jobs will be saved or created; the more Treasury and MBS securities the Fed buys, the more interest the Fed will receive; the Fed may be more profitable! Stuff the extra money into our pillows and sleep easy…

As he was going through the last village, there stood a scissors-grinder with his barrow, as his wheel whirred he sang, I sharpen scissors and quickly grind, my coat blows out in the wind behind.

Ben stood still and looked at him, at last he spoke to him and said, all's well with you, as you are so merry with your grinding. Yes, answered the scissors-grinder, the trade has a golden foundation. A real grinder is a man who as often as he puts his hand into his pocket finds gold in it.

Ben always wanted to be the master of fiat money printing. The art I want to manage is to print fiat money, backed by nothing except faith, but be able to find someone who can give me gold for it…
But where did you buy that fine goose?

I did not buy it, but exchanged my pig for it.

And the pig?

That I got for a cow.

And the cow?

I took that instead of a horse.

And the horse?

For that I gave a lump of gold as big as my head.

And the gold?

Well, that was my wages for seven years, service.

You have known how to look after yourself each time, said the grinder. If you can only get on so far as to hear the money jingle in your pocket whenever you stand up, you will have made your fortune.

How shall I manage that, said Ben. You must be a grinder, as I am, nothing particular is wanted for it but a grindstone, the rest finds itself. I have one here, it is certainly a little worn, but you need not give me anything for it but your goose, will you do it?

The money printing machine has signs of significant wear and tear, but works really well. Ben will give everything for expanded powers…

How can you ask, answered Ben. I shall be the luckiest fellow on earth. If I have money whenever I put my hand in my pocket, why should I ever worry again.

With the power to print money, I shall be the luckiest fellow on earth…

And he handed him the goose and received the grindstone in exchange. Now, said the grinder, as he took up an ordinary heavy stone that lay by him, here is a strong stone for you into the bargain, you can hammer well upon it, and straighten your old nails. Take it with you and keep it carefully. Ben loaded himself with the stones, and went on with a contented heart, his eyes shining with joy. I must have been born with a caul, he cried, everything I want happens to me just as if I were a sunday-child.

Ben’s powers were not curtailed; he cried as if he were a Sunday-child… (Editor’s note: Ben was indeed born on a Sunday).

Meanwhile, as he had been on his legs since daybreak, he began to feel tired. Hunger also tormented him, for in his joy at the bargain by which he got the cow he had eaten up all his store of food at once. At last he could only go on with great trouble, and was forced to stop every minute, the stones, too, weighed him down dreadfully. Then he could not help thinking how nice it would be if he had not to carry them just then.

Maybe this money printing is tougher than I thought. The money printed thus far just isn’t having the desired results…

He crept like a snail to a well in a field, and there he thought that he would rest and refresh himself with a cool draught of water, but in order that he might not injure the stones in sitting down, he laid them carefully by his side on the edge of the well. Then he sat down on it, and was to stoop and drink, when he made a slip, pushed against the stones, and both of them fell into the water. When Ben saw them with his own eyes sinking to the bottom, he jumped for joy, and then knelt down, and with tears in his eyes thanked God for having shown him this favor also, and delivered him in so good a way, and without his having any need to reproach himself, from those heavy stones which had been the only things that troubled him.

As Ben’s key got stuck on his keyboard, printing an infinite amount of money, a wondrous thought popped into his mind: the U.S. dollar would be sent into a tailspin, the economy will kick into high gear as exports soar, all those underwater in their mortgages may be saved by inflation...

There is no man under the sun so fortunate as I, he cried out. With a light heart and free from every burden he now ran on until he was with his mother at home.

Do you believe in fairy tales?

We manage the Merk Absolute Return Currency Fund, the Merk Asian Currency Fund, and the Merk Hard Currency Fund; transparent no-load currency mutual funds that do not typically employ leverage. The Merk Hard Currency Fund can be considered an international fixed income fund with a firm commitment to the short end of the yield curve. To learn more about the Funds, please visit www.merkfunds.com.

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Sep 21, 2010
Axel Merk

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The Funds primarily invest in foreign currencies and as such, changes in currency exchange rates will affect the value of what the Funds own and the price of the Funds' shares. Investing in foreign instruments bears a greater risk than investing in domestic instruments for reasons such as volatility of currency exchange rates and, in some cases, limited geographic focus, political and economic instability, and relatively illiquid markets. The Funds are subject to interest rate risk which is the risk that debt securities in the Funds' portfolio will decline in value because of increases in market interest rates. The Funds may also invest in derivative securities which can be volatile and involve various types and degrees of risk. As a non-diversified fund, the Merk Hard Currency Fund will be subject to more investment risk and potential for volatility than a diversified fund because its portfolio may, at times, focus on a limited number of issuers. For a more complete discussion of these and other Fund risks please refer to the Funds' prospectuses.

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