We can support above with equations (3c) and (3d) given by: dV2/dV1 = (M1/M2^2â€¦â€¦(3c)
and V2 = (1 â€“ dV2/dV1) â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦â€¦(3d)
Since we are unable to get values of V1 and V2, it may be reasonable to have recourse to equations (3c) and (3d) above.
By noting that M1 = 174.347 and M2 = 1017.597, we have,
dV2/dV1 = [1 â€“ (174.347/1017.597)^2] = 0.971
Thus: V2 = 0.971V1 approx.
With V1 = 1 above, then V2 = 0.971.
By substituting for V2 in equation (5f), we have:
P2 = N2142.51
Thus: P2/P1 = N2142.51/N174.35 = 12.29
It follows from equation (5g) that prices would have, on the average, been over twelve times what they were before the cash injection. Consequently the introduction of N100, N200, N500 and N1000 notes between 1999 and 2007 has led to inflation.
In actual facts, are the prices of materials over twelve times what they were in 1999 before the QE application? A feel of the price increases can be obtained too. Newspapers that were selling for N20 to N30 then now sell for N150 to N200. The increase was about 7 times more. Transport fare by commercial bus on Lagos â€“ Ibadan route that was N80 â€“ N100 rose to N400 - N500, a 4 â€“ 5 times increase. Minimum wage that was N2,500 rose to N7,500, an increase 3 times more. Cement rose from N450 â€“ N500 per bag to N1500 to N1700 per bag, an increase between 3 and 4 times more. Refined petroleum products like Premium Motor Spirit (PMS) or Petrol rose from N19 to N65 per litre, having a similar increase.
What about land? A plot of land that would have sold for N150,000 â€“ N250,000 in 1999 in Lagos sold for N2.0 million â€“ N5.0 million, an increase of 12 â€“ 20 times more. And many more! The general trend, therefore, is that prices rose sharply between 3 and 20 times the previous ones prevailing in 1999. Even a man not versed in Mathematics and or Statistics would know that the average of 3 and 20 (the two extreme price variations) is 11.5, falling within a neighbourhood of 12.5. This validates the appropriateness of all the developed equations used above.
What caused the large variation from 3 to 20 times more in the actual value of P2? Importation of cheap goods from China and India! Coupled with this is the importation of second hand vehicles, equipment and wears from America and Europe! Nigerians must be grateful that Indian and Chinese goods are very cheap, and that the second hand items are readily available, thus pushing down an otherwise prospective high price regime if locally produced goods were to be without alternatives. But the alternatives are actually killing the Nigerian economy.
The foregoing shows that the QE application in the past in Nigeria has negative side effects: (i) Loss of productivity from its 100% in 1999 level to 46% in 2007 (refer to equation 5d above); (ii) Skyrocketing of materials prices even with the importation of cheap Chinese and Indian goods (refer to equation 5g above); and (iii) Liquidation and winding down of local industries. Among the industrial capacities lost were the only two tyre manufacturing companies (Dunlop Nigeria Ltd and Michelin Nigeria); (ii) the many textile companies (Afprint, Aswani, Chruchgate, Five Star, Nigerian Textile, etc in Lagos); cement companies, vegetable companies, steel rolling companies, etc.
On the basis of the foregoing, one wonders why new sets of N50 notes were released in Nigeria to mark the countries 50th independence anniversary October 1, 2010. There was already too much cash injection between 1999 and 2007 that a new injection in 2010 can only worsen the monetary crisis. I think that Mr. Sanusi Lamido Sanusi will find a means to correct this obvious lapse on his part.
Why have I gone to review this issue of QE application again? It is because it is been rumoured that new N2,000 and N5,000 notes are to be injected into the economy soon by the Central Bank of Nigeria (CBN), perhaps under pressure from the Presidency and the Ministry of Finance. The damage that would be done to the economy will be catastrophic if implemented. Let me advise that that in positions of authority should open up that they are incapable to manage the resources at their disposal very well for the good of Nigerians. They have alternative routes to follow: resign their appointments or seek opinions from those outside government circles, even from the opposition and critics of government policies. After all, Nigeria belongs to all of us equally at least as provided by the Constitution.
Notwithstanding the foregoing, it is noteworthy that Japan has successfully applied QE without any side effects. What did Japan do that was missing in our situation and vice versa? We shall examine this in details in a subsequent article.
As usual, I welcome both criticism(s) and comment(s) either publicly or privately or both. However, those criticizing must arm themselves with sufficient facts lest they become objects for critical re-examination. My e-mail address remains jaomotayo2 @ yahoo.co.uk. CONCLUDED.
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