MMM: A Horrible Leakage To The Nigerian Economy -By Nwaobia Faith

Economics and Education Analyst

Obviously quite a lot has been said and written concerning the MMM speculative scheme which has eroded the Nigerian financial space. Both the conventional and the social media have been a washed with the various foreseeable gains and pains associated with this scheme to the individual investors. But my position here takes a different paradigm as I intend to relate the scheme to how it affects the Nigerian economy not just how it benefits or dangers the participants.

From economics theorization, an economy is made up of two fundamental opposing elements which determine the strength of such an economy. These elements are Injections and Leakages. Injections to an economy are those non-consumption expenditures on production which stimulate the economy. Whereas leakages are non-consumption uses of income.

In an open sector economy just as the Nigerian economy, with the full models comprising Consumption Expenditure (C), Investment Expenditure (I), Government Expenditure (G) and Net Export (X-M), the aggregate expenditure of the economy will be thus depicted:
Aggregate Expenditure (AE) = C + I + G + (X – M). This is also regarded as the supply side of the economy.

Concomitantly, the aggregate production level of an economy are all incomes generated by aggregate production (Y) determine the consumption level of household for consumption (C), saving (S), and taxes (T).
This is economically depicted as Y = C + S + T.

With these highlights on the injections and leakages interaction in an economy, the expectation is that at some point, both elements will equate so as to ensure National income equilibrium such that production and consumption become equal. Which is also depicted thus:
C + S + T = C + I + G + (X – M), but because the consumption expenditure (c) is common in the two sides, reason being that in a simple economy consumption equates savings, then we will eliminate the consumption variable and the equation will look thus: S + T + M = I + G + X .

Fundamentally, it is expected that what is to be consumed should have been produced, just as production (Income) determines consumption (c). Any consumption without a corresponding production is a leakage to the economy.

In an article credited to the Bank of England, it is obvious that new loans are only created when there is a sufficient evidence of repayment in order that the system will even out because when money is used to repay loans, that money is ‘destroyed’ and disappears from the economy. This is illustrated in this excerpts:
“Just as taking out a new loan creates money, the repayment of bank loans destroys money… Banks making loans and consumers repaying them are the most significant ways in which bank deposits are created and destroyed in the modern economy.” (Money Creation in the Modern Economy, Bank of England p3-4)

By implication, at any time a new loan is created, another consumption expenditure has equally been created which has to be repaid from proceeds of productive activities in the case of Banks that emphasis on source of repayment from borrowers before they can access funding. In the case of households, they are expected to be in some form of employment such that there repayment sources will be tied to their salaries and (or) to the businesses that repay via their cash flows.

For banks also, they are heavily regulated such that they can only create loans (New money or consumption expenditure) subject to the prevailing productive capacity of the economy because should they create loans arbitrarily, then the economy will be operating on what I call a credit based economy (Consuming what has not been produced) instead of a value based economy (Consuming what has been produced)

In economics, any money spent that is not earned is not included in the national income accounting and therefore it is regarded as a leakage to the economy. This understanding is not so common to the ordinary person whose interest would be on possession of money to be spent regardless of whether it has been earned or not.

In Nigeria and in some other developing economies, the Mavrodi Mondial Moneybox as it was originally known and promoted by former Russian politician Sergey Mavrodi, has resurfaced as a speculative scheme that creates consumption without production.
MMM as abbreviated in most literatures and articles has been identified as such a scheme that makes money available to people even when they have not earned it.
In MMM speculative scheme, people are promised of very high interest rates which is shared among the participants and as a pyramid, depends on the entrance of new participants whose deposits are used to offset people with matured obligations.

Sadly, for three consecutive quarters of 2016, the nation’s Gross Domestic Product (GDP) contracted by -0.36% (Quarter 1), -2.06% (Quarter 2), -2.24 (Quarter 3) source National Bureau of Statistics, but in the midst of these, an investment scheme operating in the same economic environment that should be a reflection of the economy is busy promising Nigerians such high paying rates.

The question is where on earth is the impact of MMM to Nigerian economy?

Do not bother with the answer because it is so obvious that there is no relationship between what the money that MMM pays to her investors and what the investors are producing. The impact is simply negative

MMM is a very horrible leakage to this economy

MMM makes money available to be spent without the people working for it.

No economy can develop in such a condition, let alone an economy that is presently running into depression.

What we need truly are investments into productive activates that will stimulate the economy not just availability of money.

MMM has contributed to the rising inflationary trend in this recessive economy creating what Economists call stagflation (Rising Unemployment and rising price level of goods and services). Just as in the midst of low production, there is still too much money chasing few available goods.

Just remember that this is a scheme that is sharing money around until such a time there wouldn’t be any to share.

Nigerians beware and EFCC please investigate this scheme and possibly close this scheme before it closes the Nigerian Economy.