While it is necessary for the monetary base to increase during economic growth periods, as is clearly illustrated in the above chart. Since the 1987 stock market crash, it has also become FED policy to increase the monetary base during non-growth periods as well. Yet, nothing in the past compares to the surge in the monetary base since mid-2008.
This exponential rise has already been well documented over the past two years. What has not been noted, until now, is the increase in the monetary base is also unfolding in Elliott waves. We have been labeling this wave structure as three completed Primary waves I, II and III. Notice the liftoff of Primary wave I, and then the subdivisions of Primary wave III. After the Primary wave III peak of $2.2 tln in early 2010 the monetary base corrected to a bit less than $2.0 tln just recently. We are “tentatively” labeling this the end of Primary wave IV.
With the recent announcement of the FED’s new quantitative easing program, which should last until June 2011. We’re expecting Primary wave V to get underway shortly. What this suggests is the monetary base should increase to around $2.5 tln during 2011, or about 25%. Then this exponential surge should end, and monetary policy should stabilize at whatever the new normal has become. The wave pattern also suggests there is an unlikelihood of any additional QE programs after the current one ends. This pattern, incidentally, fits with our long term projection of a stock bull market top in early 2012. We will update this chart from time to time. Welcome to the new capital system.