If you want to know why the US economy risks turning Japanese, look no further than the Federal Reserve’s swelling balance sheet.

The US central bank’s efforts to rescue a Covid-19 ravaged economy have long since taken it into uncharted territory. In March, its balance sheet expanded past the US$5 trillion mark, matching the Bank of Japan’s.

This, in a nutshell, is why the Dow Jones Industrial Average is not crashing, even as the US races toward 7 million coronavirus cases and over 200,000 deaths.

As America gets sicker and sicker and the economy stumbles, Federal Reserve Governor Jerome Powell has upped the dosage of the Fed’s monetary medicine. So much so it’s allowing stocks to defy financial gravity.

Just like Japan, where the Nikkei 225 Stock Average is, somehow, up 7% over the last year.