Wednesday's Market Minute: The Heresy Question

Since the coronavirus hit U.S. shores and forced a partial shutdown of the most powerful economy in the world, financial analysts and commentators have spent most their time debating one question: how much money can we pump into this economy? Not whether it's the right solution or what the ramifications could be, but how much can we get and how fast can we get it.

Well, we've got it: $2 trillion, plus another couple trillion if you count Fed asset purchases. In an environment where the baseline assumption of what is the correct economic ideology is so skewed toward one end of the spectrum, asking whether this all may be too much feels like nothing short of heresy. With a deadly virus driving the action, questioning the response equates to some to inhumanity.

But what if it is too much? I don't have the chops to answer that question, but I do have an idea when the narrative is getting lopsided. Fear over the impact of coronavirus is so intense that few right now dare to question the response, apart from mainstream market pariahs of gold bugs and bitcoiners. Economists are so eagerly throwing out guesses on GDP hits and unemployment spikes that you'd think there's a prize for who gives the most shocking figure.

It is right to assume the incoming COVID chasm in our economy will likely be the sharpest and deepest in history by many measures. But it is the width, not the depth, of this chasm that will determine whether our policy is appropriate. Without any good idea of how wide it is, how can we be sure if the policy is right?

Two months ago, many were certain rate cuts would save the market. They were wrong. Before that, rates were the tool to buffer trade war risk. There is little evidence that was necessary.

And long before coronavirus, Modern Monetary Theorists were eager to push their ideas further through the policy plans of democratic candidates. Should we not question whether fitting existing solutions to brand new problems is the right course of action? There's no doubt the economy needs a bridge to cross the chasm.

But does it need a jet pack and hover boots? Failure to ask these questions may lead to less scary, but more unexpected problems on the other side.