A simple money sink

wouldnt it be easier for them just to suspend all stipends for a month or two?

However, as things stand right now, there is no true money sink except for ratings and upload fees (ie. the money otherwise changes hands, and is not removed from the game)
and they aren't expensive enough nor popular enough to affect much. There needs to be viable ways to remove money from the game that people would be willing to pay or have shown they will pay.

wouldnt it be easier for them just to suspend all stipends for a month or two?

The idea is simple: to arrest large dips in L$ value, Linden Labs should buy L$ back in the open market. Why not, central banks all over the world do it... spend USD to keep the exchange rate stable. When the L$ demand overheats, the lindens can also put more money into the system by selling L$ in the open market.

I'm not saying that they should intervene so much that L$ becomes essentially pegged to the USD, but they could possibly intervene enough that the market does not swing too wildly. For example, intervene when the value of the L$ moves more than 2% in a day. What do you think?

I really don't understand the need for a "money sink", and barely understand the concept of why one is needed. There is no equivalent in a RL economy.

This may be a bit of an oversimplification, but what causes inflation is when the money supply grows faster than goods and services produced. In other words if there is more money than there is stuff to buy. Deflation is caused by just the opposite; more goods and services than there is money.

I can see the concept of a "money sink" as a means of regulating the money supply, but it is not a necessary part of an economy as many have suggested. Other more conventional suppy and demand controls should work as they do in a RL economy.

There is some huge difference between Second Life and Real Life.

Aquisition of resources. Labor required for manufacture. Wear.

In a virtual economy , lack of the factors have to be blanced by either money or time sinks.

A time sink accomplishes a decrease in inflation by reducing virtual income.

A money sink directly impacts the money supply.


Additionally - In real life the government DOES NOT print money and just hand it out - at least not in stable economies.

Um... wrong? Money still does not leave the economy. Money comes from the company to pay the workers, the workers buy the products that the company makes. Where is the money sink in that cycle? Companies pay other companies to build a machine for them, that company pays its workers, the workers buy the goods that the first company makes. Still no sink. The government taxes the people in the country, that money goes a pays for government run programs. Yet again, no money sink. Must I go on? The government prints money, much more then is lost or ruined, so the amount of USD floating in the world increases every day. There are no money sinks in RL, why do we need them in SL?

...
The most common mechanism used to create money is typically called the deposit creation multiplier. It measures the amount by which the commercial banking system increases the money supply. To control the amount of money created by the system, central banks place strict reserve ratios on the commercial banks. For example, central banks generally restrict the proportion of primary deposits that commercial banks can lend out. This is called the cash reserve ratio.

For example, lets assume that a primary deposit of $1000 is made into bank A. If the cash reserve ratio is 12%, then $120 must be kept on hand by the bank and $880 is available to be lent to someone else (called the excess reserve). Now if bank A uses its $880 in excess reserve by lending it out, and that is deposited in bank B, it represents a primary deposit to the second bank. Bank B must keep 12% of $880 on hand but can lend out $774.40. If that $774.40 is eventually deposited in bank C, the third bank must keep $92.93 on hand but can lend out $681.47. The process continues until there is no excess reserve left (For simplicity we will ignore safety reserves.). By adding all the derivative deposits we can calculate the amount of money created. Alternatively we can use the deposit multiplier equation:

TD = ID / crr

Where:

* TD = change in Total Deposits
* ID = Initial change in Deposit
* crr = cash reserve ratio

The initial change in deposit of $1000 will increase total deposits by $7333.33 given a reserve ratio of 12% (1000/.12=8333.33).
...

A bit of sidenote: While governments don't just create money, banks, in a way, do.

Money creation in RL (Wikipedia)



It's an interesting read, worth checking out the whole page.

I didnt say there was a money sink in RL

I said -

***In a virtual economy , lack of the factors have to be balanced by either money or time sinks.***

Meaning - becuase the supply (not money supply, manufactured goods supply ) is potentially infinite - you need some way to balance that.


-on the subject of printing money-

The US government Does not simply print money and release it into the economy as a matter of policy.

The US government Has Income, and Borrows money to make up for shortfalls where that Income (Taxes) falls short of Spending.

Linden Labs literally does simply print money and hand it out as a matter of policy.