Stabilization Of L$

Unfortunately, yes. Way off.

If LL were to bank all our monthly premiums in a seperate account and use that as their "gold", then you might have an argument.

But they don't.


Every basic member who sits idle and doesn't login is a user that draws no new currency to SL economy.
Every basic member that logs in once a week, adds L$50 of NEW money to the economy.
Every basic member that upgrades to premium looses US$2.50 a week and adds L$500 of NEW money to the economy.

All of the above without adding to the user count, thereby increasing the float of L$ inworld, hence making it worth less (as opposed to worthless).

Well, I tried!

Though technically yes that $$ is being added to the economy, it doesn't really mean much if they were to cancel their accounts and that $$ never got spent.

Hmmmm...since basic accounts are now free, maybe LL should implement some kind of "didn't log in for a year account cancelled" policy for the free basic accounts. They can't really complain about lost money if they never paid for it.

User count??

Yes, I was thinking about this same thing...
If people are not willing to pay US$7.00 (L$2000 now)
for that new skin, then they won't.

Perhaps in some cases the items prices are too low.

A person buys L$1000, but the skin is only L$200,
so now they have L$800 more that lasts a long time
and they don't need to buy more soon (lack of demand
causes rate to fall).

But looking at the median $L each resident has
(as provided by the LL economics sheet), and what we
here in the forums, not that people have more $L
than they can spend, but rather they have "NO" money.

This could be because:

1) They are cheap slackers who aren't willing to go to GOM
and spend any more $US, and want as much welfare
handed to them as possible, and in the mean time, whine
about not having enough money. ( of course, I'm being
slightly heavy handed with my words as a form of humor
- before anyone gets TOO offended )

2) They don't know about GOM, or find it confusing or
untrustworthy, and so feel they are stuck with only
what they are given. LL's new plan of allowing people
to buy $L through the GUI will solve this problem very
nicely.

3) They know about GOM, and are willing to buy, but
the rate is currently to high.. which in turn means they
feel they should be getting more $L for their $US, which
means item prices are too high and their $L doesn't
buy as much as they think it should.


Personally I've run across an ENORMOUS amount
of people that fall in to category #2... so, I've started
handing out notecards to people under 30 days about
GOM.


gabrielle

completely wrong. The quantity of L$ is not the only factor, but it is indeed a factor.



Increasing demand for currency will help stabilize the exchange rate, if not make it rise. How much effect it has depends on how much demand is generated.



$15 to $40 bucks a month is not exactly greed. We're not talking Tyco here, Strife. If commercial businesses were removed... well, LL is not going to do that -- they CAN'T -- their entire business model depends on it.

If SL tries to remain a fun little creative socialist cooperative, it wouldn't die... there are lots of us, including me, who could enjoy that, but LL's vision and goals are much bigger. The content within SL right now is small-time, let's be honest. It suffers from two limitations -- technology platform and the market opportunity. You not only need the technical tools to be able to build exciting, complex projects, you also need to incentivize people to take those on -- that is, if you want to do this at scale.

LL doesn't want to run a 3,000 person world, they eventually want to run a 3 million person world. That isn't going to happen unless real resources are invested into Second Life, which isn't going to happen unless there's a clear economic return (albeit with normal business risk)



now THAT gets to the heart of the matter. Whether this holds true will determine the overall viability of Second Life.




the currency that is sold in GOM is recycled within the economy, so it does get reinvested.

I think the median balance is getting to be more and more inaccurate as a measure of average wealth.

One reason is alts. Imagine you are the only person in SL, and you have 3 accounts, 2 of them have a balance of $50, the other one has a balance of $500,000. The median balance would be $50 -- clearly not a fair measure of your wealth.

Banks and other institutions that hold your money for you also skew the numbers a bit. Imagine that SL has 100 people with 5k balances. If 99 of them entrusted $4500 to one person, the median balance would be $500. Again, this does not mean that everyone is poor, just that they put their money somewhere other than their balance.

While you can argue that the number of alts and people with bank accounts are not enough to significantly affect the median balance, the more SL grows the less reliable median balance would be as a measure of the average resident's wealth.

You make several good points Gabrielle.. however, I would have to disagree with the idea that GOM can do nothing about the fluxuating price of L$. GOM is the primary CAUSE of the fluxuation of L$, because they're the primary market source. Some clown may be selling L$ on Ebay... but not everyone uses Ebay and his supply of L$ will eventually diminish whereas GOM's will remain stable.

Consider: If GOM were to set their L$ prices at a stable $4/1000... Ebay Guy sells L$ for less than GOM. GOM suffers for a while... but eventually the guy runs out of L$ to sell, because he can't offer decent $ for L$. So sellers sell on GOM instead.... or they hold their L$ until it's a good time to sell (as many are doing now).

When Ebay Guy runs out of L$, GOM has the corner on the market. They set the selling at $4/1000 and the buying at say, $3.90 /1000 and they pull a 10 cent fee off every 1000 transaction. In the meantime, LL is sipohoning off excess L$ as they have always done and within a very short period of time, the whole economy stabilizes. More on this in a sec. I just wanted to answer the concept that GOM has no control. Fact is, they control EVERYTHING... because they make the rules. Everyone else just follows their marketing method.

Someone else may try to buy/sell L$ at a higher rate than GOM... but they won't succeed because noone will buy from them when GOM has unlimited L$ for a lower price. Win/win situation. Bottom line, GOM is in control... for now. That's not going to last long as the L$ keeps dropping and folks start looking at alternatives.

Want to know what MY alternative is in my personal case? I stop accepting L$ payments for land and vendor rentals and require monthly payments through PayPal. I take L$ out of the loop. Now... is that good for SL? Is that good for GOM? Is that good for the economy?

Nope. That's why something has to change... and change soon.

Wayfinder, you're missing the point. GOM is not a person, GOM is a web site. GOM does NOT set prices.

The 1500+ users that buy/sell on GOM each month set THEIR OWN price.

If you want the value of L$ on GOM to go up, you have to send an IM to everyone who uses it and ask them to raise their prices....

I hate to multi-post, but can't resist it. I absolutely appreciate your comment here Gabrielle. You voice the beliefs of the majority of people... especially here in the US. In a utopian society, this comment would even be valid. And indeed it is valid at times.

However, the thing that runs economics isn't supply/demand. It is (if you'll pardon my personal pessimistic-in-this-case attitude) greed/gullability. The seller and buyer both have a greed factor, and the seller and buyer both have a gullability factor. The question is which wins out at any time.

Take for example the current US gasoline situation. Gas companies charge $3.oo a gallon, DOUBLE that of last year. Has the supply dropped by half? No. Has the demand doubled? No. Has the cost of resources doubled? Do the math: a year ago a barrel of oil was $45 (?). Now it is $60 (?... I'm not sure of the to-the-cent figures). $60 is not anyway NEAR double $45. So what is the factor?

The sellers are greedy cotton pickers and we are gullible/desparate enough to go ahead and pay that price at the pumps because we feel we can't do anything about it (just like most people are wrongly of the opinion they can't do anything about the value of the L$).

If America rebelled and for ONE WEEK refused to buy gasoline, period, refused to drive to work, refused to drive to school, went on strike so to speak, you'd see those gasoline prices plummet overnight (I think. Who knows in this screwy world).

So no, not supply and demand. Greed and gullability.

Totally agree with your post Ellie. The way for the L$ to stabalize is for LL to do the seldom-done and take the bull by the horns and wrestle it to the ground. The bull may be big... but the cowboy's got the brains.

LL *may have made* some good decisions in this, especially in the area in which they have decided to cut stipends. It's just not enough (as is evidenced by the continuing decline of the L$).

What do we want, slow inflation or "stagnant no change L$"? Let's reword that: substitute "user willingness to buy vs seller willingness to sell" and "stabalized currency rate to serve as a foundation of that concept".

Inflation will absolutely be controlled by supply/demand. When sellers start charging so much that buyers don't want to buy, they'll stop selling. Then they'll wise up and lower their prices (or alternately, lose the market to sellers who WILL sell for less). So we wind up with a stable L$ foundation that correlates directly with the US$... and a marketing economy that flourishes and runs like it should because the L$ has become a RELIABLE means of barter rather than a flaky one that scares landholders to death (and therefore increases the L$ cost of rented land and merchant space dramatically, therefore driving up costs, ie, inflation).

Yeah.

While this was at one time the case, it is no longer. The "gold standard" has nothing to do really with the amount of US$ in circulation. It never should have... for economy is a matter of population (ie, how much money does each person need to live), not conceptual material wealth (how much of that shiney stuff do we have in a vault?).

when you say landholders do you mean large scale landholers (otherwise known as land barons) or any landholder...and why would it scare them to death?

Not missing the point at all Surina (at least, I don't *think* I am. LOL). I never said GOM set the PRICE. That's exactly the problem. I said GOM sets the method... ie, they run themselves like a stock market. The stock market is one of the most unstable economic systems on the face of the planet. People gain/lose fortunes there every day and it goes up and down like a faulty toilet valve. The stock market is basically a BUSINESS INVENSTMENT and GAMBLING facility that is as flawed as it can be. Not a good model upon which to structure the GOM.

Alternative: the GOM should have set themselves up as a simple conversion house. You want 1000L$? Cost you $4.oo US. You want to sell 1000L$? We'll arrange the sale and you get $4.oo US less our sales commission.

Take the whole flakey "stock market" concept out of the picture, set the GOM up as a monetary exchange, and perform a service. That was GOMs mistake from the start... they turned the L$ into a stock market game rather than a viable and reliable economic standard.

Has to do with both Music. Basically, any landholder that rents out space, either for living or for merchanting.

Both living space and merchanting space is based on land cost (which is based on the US$... not the L$). That price remains FIXED no matter what the L$ does. However, rent and merchant space for land is usually charged by the L$ (ie, you want to rent this space, it will cost you L500 / week).

But if the L$ drops in value significantly, suddenly the land holder's L$ income does not cover his real-life US$ land fees, and he's paying for someone else's merchanting out of his own pocket.

That is what scares landholders to death, because it can (and often does) make a difference between them keeping the land running-- or closing it down.

No, I'm not suggesting that at all. I'm stating that if people want to purchase extra content, the value of that content needs to have an established equivalent in US$. It's really a simple and sensible concept.

There needs to be a direct equivalency between the US$ and L$ in order for the L$ to be a viable economic standard.

Otherwise, here's what happens: A landholder can't affort to accept the same L$ for land that s/he did last month, because it just plummeted 50 cents per 1000. Are landholders supposed to pay that out of their pockets so that land renters can get by for less? Real life US$ land fees don't decrease. Result: land owners stop accepting L$ for vendor and land fees and require PayPal. Or they increase L$ fees every week as the L$ plummets.

Or alternately... Linden Lab fixes the L$ so that the economy stabilizes, and they use L$ siphons to remove excessive L$ from circulation, just as they've always done, thereby controlling runaway inflation.



Well, as many folks are aware, LL has just recently announced that they plan to internalize the L$ sales market. That means GOM is not going to be the deciding factor for much longer. GOM set up a method that obviously did not/does not work, and now LL is going to take over because GOM does not make it easy enough for people to buy/sell L$. That's the simple bottom line.

Don't get me wrong. I like the folks at GOM. Very friendly. Very helpful. Good group. But one thing GOM has failed to do is make the L$ a stable monetary value (actually, pretty much like the FED has failed to make the US$ stable. Gas is going sky high, and wages are not increasing to cover it. Just watch what THAT does to the economy over the next few months).

GOM has basically left L$ stability up to a fickle market of users who often don't have a clue how L$ market works or what L$ are worth... or of the internal structure of Second Life and how it can be seriously affected by the GOM. In this, imho, GOM has done a serious disservice to the SL community. L$ have gone up and down like a skyrocket... which makes it very difficult to do L$ business properly on SL.

Really, I see no reason against stabilizing the L$. Consider:

* It doesn't hurt the end client. They know exactly how much L$ will cost at any time, and can therefore easily estimate how much they need to spend in US$ to fund their SL lifestyle. They may not have the back-handed benefit of L$ going down from time to time... but won't have them increase to high levels either.

* It helps vendors and land renters, as they can depend on L$ stability when pricing their wares and lands. This actually helps avoid inflation as well, since they don't have to charge more for things as they would if the L$ went down in value.

* It helps Linden Lab. They can stop being concerned about GOM and other 3rd party L$ vendors and concentrate on controlling a stabilized L$ by siphoning off excessive L$ and feeding back L$ when it is necessary. There are many ways LL has of doing this, ways already in operation. This will give LL the ability to stabilize the economy far better than exists now.

All in all, everyone benefits... except GOM of course. But I would have to say that as much as I like the folks at GOM, time for them to wake up. Their current model has failed. The L$ market is changing and soon, so if GOM wants to survive, they need to restructure and FAST. They need to find a way to make people want to do business with them... a method which will keep them around no matter what. I would guess stabilizing the L$ NOW and making it VERY EASY for folks to buy and sell L$ would be a smart move on their part. I know of a couple ways that can be done. If I can figure it out... so can GOM.

From every direction I've looked at it, I can only see advantage to stabilizing the L$ at $4.oo/1000. Seems to be a smart move at this time... a concept that a lot of other folks have echoed.

As far as I know, LL has no history of ever "siphoning off excessive L$." LL might decide to start doing that, but they seem to have a policy against accepting L$ in place of US$. As just one example, land auctions are no longer available in L$.

There is no evidence that by making L$ sales easier that the L$ will not simply drop in value even faster. If LL's new system makes buying easier, it also makes selling easier. If the selling pressure we see on GOM remains, the drop in the value of the L$ will be faster than it is on GOM.

So you're speaking exclusively of people who purchase land to rent out. It shouldn't scare the casual landholer should it? People who purchase land for personal use?

Yea, although the US doesn't do that anymore, technically your paper money is worth nothing now

While it might not effect the casual landholder who isn't trying to sell anything to cover land fees, it will probably start to effect the people renting out vendor spaces at the various malls when the rent jumps up to cover the lindens drop in value. Once that happens the merchants will jump their prices to cover the new rent fees. Basically what I see happening in SL if the Lindens don't stablilize on GOM is that having 1-2k in lindens will no longer let you do what you want in the game, instead new players and people who play casually will need more lindens to fully enjoy second life.

They do it all the time. Philip Linden just had a major Townhall Meeting in which it was mentioned more than once that LL helps control SL inflation/recession by controlling the flow of L$, either by increasing it in stippends, or using siphon devices to make them disappear.

Yeah Music, far as I know, personal landholders have no reason to be concerned... except of course for the fact that SL econony affects everyone in someway or another-- some more than others.

Reducing stipend doesn't siphon L$, it merely slows down growth of the L$ money supply. I can't think of any of the L$ money sinks which involve LL actually buying L$ with US$, as using the LL currency trading system to remove L$, even temporarily, would entail.

All I can go by Smiley is what Philip Linden said. I dunno how it works. All he said is that LL has L$ sinkholes that they use regularly to remove L$ from circulation.

Yup. I'm reminded of a certain competitive game in which a single Tshirt costs 5,000 credits. And those credits were expensive. Good points Slick. The bottom-line economy of SL appears to me to be land. If land rentals get messed up... so does the rest of the economy.

Interesting thread.

Strife is correct, no one really wants to pay for that stability.

No one that's advertizing widely anyway.

I am still accepting L$ payments for the land I help maintain at the 4US$ rate, mostly because I don't use GOM to convert them to US$ but instead use the L$ for other things within SL (such as the Money Tree). In fact I've not really used GOM to sell, but to buy, though not recently.

In the case of things like the Katrina relief funding, I went to Red Cross directly. I had good reasons to do this as well: I donated a signifigant amount (equiv to my total 'tier' these days), and with their reciept I can both claim it on return for the year and also submit it to the RL company I work for so they can help match part of it.

To me, SL is not about a monitary profit, its a social one.