Another inflation thread? Oh yes. This one makes sense, though. :)

Okay, seriously guys, gals, alts and trolls.

Let's have some thinking.

Currently:

The yearly cost of a premium account is $US 72.00.

In a year, a premium account will accumulate $L500 * 52 = $L26,000.

$L26,000/$US 72.00 = $L361.

So, the "true" value of the $L is roughly $L361.

Obviously it's not there (yet). Why, you ask?

From version 1.2 onward (January of 2004), the driving force of the $L has been land demand and land novelty.

When land was in extremely short supply, the price of land shot through the roof (we're talking average prices in the double digits per square meter here) as the Lindens scrambled to meet demand. As a result, during this time the value of the $L against the US dollar rose dramatically as everyone was pushing against the money supply to get some land. High land prices meant a high demand for a lot of $L in your account at once to pay the land barons (who, by sheer coincidence, were then selling the $L right back on the market, and the cycle repeated itself).

The moral of this story: When there's something to BUY, the price of the $L goes up.

Eventually, the Lindens got a hold of the demand problem, and the price started to skid. But lo! The snow sims came out, and suddenly there was a mini-rush of snow land. A slight spike in $L prices again! Alas, no one wants snow land now; it's dead territory.

Anyways, the price of the $L goes up when there's an incentive to buy things.

Currently there is STILL a higher pressure to buy things than there is money in the economy. That's why it's at $L280/$US 1.00 rather than $L361.

There are other factors, too; a burgeoning amount of basic accounts is keeping the price up, at least initially, as people pay money on the exchange to satiate their spending habits.

Eventually, though, the current economic climate of SL is what is dooming it to its slide towards the magical "floor" of $L361. That is, there's almost nothing you can't get for free, including $L.

Want a house? Gnu store. Vehicle? Tons of free ones. Clothing? Geez, there's so much free clothing it's sick. Scripts? Lots of free ones, or sandbox kiddies who love to tinker for you.

Entertainment? You're kidding, right? Who charges for events?

And if you want $L, all one has to do is camp on the camping chairs or play Tringo until their head explodes. OR both at once, I hear that's popular nowadays.

So here we are; the constant push for things to be affordable and free in SL has forced the $L on a downwards slide. That, coupled with the fact that there really isn't any compelling need to buy $L20,000 at once, means the value will continue to slide down.

unless:

1) The Lindens cut premium stipend (unlikely, given that would anger even more people than last time)

2) People stop handing out things for free (will never happen, probably a good thing for the SL culture, but bad for the SL economy and, possibly, indirectly affecting LLAbs' bottom line)

3) People stop providing $L sponges to satiate dwell desires (will probably happen once the Dwellclubs go under because of DI going away)

The $L is going to continue marching towards $L361.


Some other things:

1) Basic stipend isn't going away; that doesn't make any sense for anyone for any reason, and don't let the economic trolls/alts on ehre tell you otherwise. If basic accounts didn't get any sort of stipend, the economy would grind to a halt, and the $L would deflate so quickly your head would asplode. Also, no one would have any customers because -- gasp -- they have no money to spend.

2) The Lindens have no plans to implement any sort of tax, investment bank, income tax, property tax, land tax, or land price cap. Why? Because that's a ton of insane variables to tweak every week.

Taxes were tried once to curb prim usage: it was a complicated failure.

Investment banks don't make any sense, because you're just adding to the inflationary nature of the $L.

Income tax? Easily avoidable by gaming any sort of system you kids can come up with.

Land tax? Hurts the economy by forcing Land Barons to charge more to cover the land tax, and hurts smaller land sellers unfairly.

Land price cap? Un-capitalistic, and entirely subjective; it breaks the lassiez-faire capitalism that the market currently works under.

Other factors that may or may not affect the $L price: People gaming the Lindex, people dumping millions into the market at once (hi Anshechung.com), the actual strength of the US dollar, the sheer number of basic accounts vs premium accounts, and the affect the economic money sinks have on the money supply vs what's coming in.

For those of you keeping score at home:

Money Sinks: Upload fees, classified ads, anything paid to a Linden, the defunct land auction process, dormant accounts, deleted accounts, banned accounts

Money Creators: Stipends, Traffic, Linden payments (for services rendered), Linden prize money, Linden promotions, referral bonuses, ninjas

So there we go: A crash course of SLeconomics 101 by someone who's been here since before the $L was worth anything, and public land was plentiful.

$L361 or bust, much to our chagrin. Get used to it.

Here is a great money making idea.

1) Register 10,000 Alts
2) Use 10,000 PrePaid Debt Cards $72/each ($720,000)
3) Wait 1 year
4) Sell L$260,000,000 for $910,000 (@US$3.50 per 1000).
5) Profit: $910,000 - $720,000 = US$190,000


So I can earn $190,000 for doing nothing. Hmmmm, Lets see what Chinese Bank
is flush with cash that its looking to make a little Investment Banking with..

If they raised the price of an annual plan to $96, that changes the equation quite a bit. That would be driving the price to $271 instead $361.

Also, as has pointed out before, buying an annual is much more like buying a bond than actually buying currency. People are not quite buying $26000 linden for $72. Not exactly. The reason the Linden is supposed to devalue to $361 is because it's possible to buy it for that from Linden Labs. The problem is that you don't get it all at once.

Let's put it this way, if you want/need $26000 Linden, you aren't going to buy an annual membership and wait a year. You are going to buy it on an exchange and be willing to pay a premium for it. How much more than $72 are you willing to pay for it? Right now it costs $92.50 to get it right away on Lindex, or 28% more than a waiting a year for it. Perhaps a little high, but still justifiable. If you need it now, you need it now.

Perhaps the price of lindens can go down even more to get closer to the magical $361, but there is no reason to believe it's actually going to get that low. As long people want/need Lindens NOW, lindens will be sold for more than L$361/USD. The only question is how much closer. Personally I would be quite surprised if it approached $320 or $330 under current stipend/sink conditions.

BTW, the market seems to have hit quite a bump at $280 recently. I would be no more surprised to see it hit $275 or $270 in another month as I would to see it hit $290.

I used to do economy system programming for text-based games that are 1) free and 2) had much, much more limited things to buy than SL, being text-based and roleplay. In the process, I was using the development chatter from Sony's then-upcoming Star Wars Galaxies MMORPG fro my own development, as they were talking about lessons learned from Everquest's economy. The economy I did first was a basic trading economy based on supply and demand between planetary markets in about 20 different commodities, and it ran for about three years before the currency devalued. Version two is much stronger (sort of explained here for the curious: http://www.3verse.cx/index.php?econ )

However, I see similarities between it and SL, even though SL is in a somewhat better position to enact a real economy than MUSHes, because there are more quasi-required transactions, versus players who can play free and happily without clothes/houses/anything to buy at all (everything is described in text, and anyone can do that.) More opportunities for drains.

I haven't sat down and gotten into the econ here, but plan to, as it's fascinating. I agree, there's a lot of little factors, but then... there just are. I'm of the opinion that you can't half-ass an economic system; either you do a very simplistic one, or you look at the big picture and design it from there. Also, a third of the population, if not more, is going to dislike it anyway, and as the Econ Admin, I think I was the most hated on the game. Maybe they just hated my spreadsheets. IMHO, economy is half about limiting for the good of the whole, and people don't tend to like that, even if it pans out for the good of the whole over a long period of time.

Anyway, I will dive in and get a handle on it, and try to offer some better insight from my POV.

I know I'm living in an lame place in the world, but my bank charges about US$ 25/year for a debit card. Also, about US $1/month for the bank account (required for the card). You can have a maximum of 5 accounts per card in SL, so:

( 5 x 72 USD + 25 USD + 12 USD ) / 5 = 79.4 USD, that is, that comes out to 1 US$ = L$ 327

Also, I didn't calculate my time, that is needed to open a bank account and card (in person), I would say that's 1 hr at least.

Yeah, I know, it's not fair that Americans earn more (on average) than ppl here AND also have better, cheaper deals (cheaper bank cards, etc), but I am now used to living with that

PS: and two more things:

1. The 'NOW' factor (that's been pointed out): I need L$ 26 000 NOW!, not one year from now. That has a price.
2. The risk: I can buy a yearly account, but SL's future, or more so, the L$ value is very uncertain. I could even lose by having 20 yearly accounts, if the L$ goes lower than 1 USD = L$ 361

The whispers of 361 being 'magical' might cause panic attacks...poorly made textures might cause seizures...

Either way...this thread is interesting. ;p

- Calix


p.s. - Yeti is becoming popular again too, sightings and whatnot, but I do not believe that Yeti nor Ninjas as was mentioned in one of the posts is going to effect the deflation of L$.

Good post, Lordfly.

Why is it that whenever someone posts a new thread quoting the magic formula for the value of the L$ (L$26,000/$72 = L$361/$1) that they always, without fail, forget to mention that a premium account includes 512m land tier.

The stated value of 512m, as posted by LL here, is $5 per month. If you have a premium account you are paying that whether or not you choose to actually buy land.

So out of the $72 annual fee, $60 is paying your first 512m tier, leaving the cost of your L$26,000 stipend at just $12.

This makes the "magic value" L$2167 per $1.

Then there is the tier discount to take into consideration. The tier cost stated for 512m is actually for your second plot of 512, then the tier price per meter goes down as you tier up. Working backwards to gauge the true value of your first 512m tier we only have a total of $6 to play with, so it is safe to assume that that is the base cost for 512m tier.

$6 per month on an annual account paying for the tier leaves no money left to pay for the L$26,000 stipend, making it a freebie. Thus it cannot be used as proof (or even an example) for the "true" value of L$.

The "true" value of anything at all is simply a combination of 2 factors.
1) The price people are prepaired to sell at.
2) The price others are prepaired to pay.

In the context of L$ and LindeX, as long as free basic accounts continue to get free stipend, and $72 annual accounts continue to get free stipend (as shown above), then factor 1) could be any random number that cares to fall out of the sky.
Secondly, as long as supply on LindeX continues to outstrip demand then factor 2) will never come into play as the price is driven by the desire to sell quickly rather than for profit.


As a final thought, the current average volume is about L$5 million per day. If sellers refrained from placing orders for just one day then the price would jump to around L$274... Can you wait one extra day to get your $$?

There is no magic value at all.

Lordfly's formula is perfect. 52 * 500L$/72US$ is indeed more than 361L$/US$. This is the price the holder of a premium account "pays for" his stipend - if he is on a yearly payment plan.

If you are on a quarterly plan you receive 289 L$/US$.

If you are on a monthly plan you receice 201 L$/US$.

All of these formulas are true - like the first one. Does anybody know how many residents are on a monthly, quarterly or yearly plan?

Or is it the theory that the cheapest "price" counts? Then the "true" value of the $L is roughly 0! Because all those who are on a free basic account receive 2,600 L$/year in stipends for a price of roughly 0US$ (0 as in zero).

Anybody who is a fan of the 361L$ theory please forgive me, but this little formula - while in no way wrong - is a very simple "model" for a very compley system. The exchange rate of the L$ is determined by many factors, among them - mentioend by Lordfly himself - supply, demand, liquidity and many, many rational and irrational attitudes and thoughts of the participants in the SL economy. Depending on the balance of these factors the exchange rate may be 200L$/US$ or 500L$/US$ and anything in between.

Stay tuned. The race has not been decided.

You can just ignore those people who hate you. They represent the
dying breed of the population who believes that content creators,
investors, etc should pour in all their time and money to advance the
game for free. They believe that profiting off your own risk taking
is wrong.

Like a wise man once said:

"Greed is Good"
-Gordon Gecko (Wall Street)

I'm still curious why people are so worried about customers that have no money to spend when they lose US$.20/week. If you loose a customer that is going to go somewhere else because they don't get their US$.20 every week, then they aren't a serious cash flow anyway. If they really are living soley off their basic stipend, then they are sending no US$ to you when you turn around and sell your $L. The economy makes no money off of stipends. That money is made for people for free. The economy only makes money off of money paid for on the Lindex. Why are these customers so vital to the economy again?

Does it make sense to give basic stipends to players after 6 months who have

- never sold an item or service (or was transfered L$ in any other way other than stipend)
- never bought L$ on the Lindex?

I'm not sure these people do much except put a drain on the economy.

Then on Day 2, you will have double the number of sellers and the
price will drop to around L$300.

Get off this idea of trying to "Control" The Free Market. You need to
focus on the factors which cause the valuation to be what it is.

Blaming the Sellers for the Valuation Decline is like the Democrats
blaming Exxon for the rise in oil prices. When any 1st year EconGrad
will tell you its a combination of Global Oil Demand Increases and
Middle East instability...

Sellers on LindenX aren't the problem. The problem is bad economic
policy by King Phillip and his Economic Advisors.

I think I love you.

Narcissism?

As a contrast of what's happened on SL, I invite folks to look at IMVU. IMVU has no stipend, and only a single startup fee which gets you a relatively small number of credits. Their website sells credits at a flat price. It doesn't matter. It's still suffered hyperinflation. The flat price on the website has only resulted in people setting up their own trading sites to sell cheaper.

It's the simple result of the nature of the markets. If there's a steep Pareto (and if it is - as suggested elsewhere - the same as RL, then that's a really steep Pareto for an online world), then the people at the top are going to wind up with huge amounts of money compared to those at the bottom. With no interest and no inheritance, there's nothing to do with that money but buy stuff, and since US$ is the only scarce resource (at the top end even land isn't scarce, since LL will make you as many islands as you pay them for), naturally there's an increasing amount of money chasing after it, and the result is devaluation.

A virtual tsunami of Gems.

Because they obviously spend that money in stores somehow; buying shirts, buying scripts, whatever. If the average shirt or whatever is $L25, and there's 100,000 basic accounts, that means you can sell 200,000 shirts a week. That's a lot of shirts.

If you take away the stipend, the people who can buy your shirts is a much, much smaller number.

The more people with the ability to buy things, the better. It keeps the market dynamic.

This is true Lordfly, but then the merchants turn around and dump those $L2,500,000 they received from the free $L50 weekly stipend giveaway on the market, further devaluing the $L.

And that's what this movement is all about, the devaluation of the linden. Not how many shirts basic members would be able to buy per week off of their free $L50 weekly stipend.

We can only have a dynamic market if atleast an equal amount of people are buying their linden as are selling their linden from the market maker, which in this case happens to be the LindeX.

The key here is to utilize any of a variety of the economic tools available within an economy to balance supply and demand to the extent that it promotes a strong currency thereby ensuring a healthy economy.

To make my point clearer, the best case scenario would be for those basic members to be buying linden off the LindeX to buy their shirts, not relying on their free $L50 weekly stipend to do so.

i dont know where to put my post but i was told to come here and post cuz maybe it would help but i am not too optimistic on that yet its worth a shot ...

i was owning the 75 dollar a month tier amount of land and ever since the update before last i have not been able to use half of the prims that i was paying to use and because for some reason the loading is horrible with being slow and blurry and i absolutely cannot stand what i consider to be lag as i avoid all areas i find that are laggy and i prefer to shop on slexchange or slboutigue just to avoid lag which often cost me more money because i dont see the product before i buy it and then to find out it has so many flaws i cant take it so i lose money on it cuz i wont use junk ...

anyhow ... i have cleared cache and i have done full maintenance on my system over and over and nothing worked. i moved the cache thing from 500mb to 1000mb but that didnt help either. it was all fine up until the update before last.

with this i decided i am not paying a tier price if i cannot use the prims that i pay for and so i sold my tier all except for taking me down to where i pay 40 a month and i sold it all at a big loss to get out from under the monthly payment and actually only pay for the prims that i am able to use that are currently falling within a comfort zone for loading time and blur and lag what have ya ...

this was my now fourth land dump ...

the first dump being due to too many impeach bush signs being placed right at my land staring and glaring me in the face.

the second dump being due to a lady shoving trees into my building but yet up high enough off of the ground i could not return them and i made many nice requests in IM for her to please move them but she didnt and she didnt respond and i sent in quite a many mails to SL with screenshots of the trees shoved into my building but they never responded either so i dumped the land at a total loss cuz i couldnt use it cuz of this lady.

the third land dump again due to another lady and her trees being shoved into my building and yes she moved them but then she set out to make things yukky for me in the area just being unpleasant and i am not here to tolerate azzholes as i am here to enjoy my spare time decorating on my land, staying within my bounds, minding my own business, so just to get away from this lady i did another land dump.

now again land dump but its due to whatever has taken place in the next to last update causing me not to be able to use half of the prims i was paying for and i dont know if this would affect land economy or whatever but i will say this ...

i will not buy any more land ever again because there are too many things causing me to lose hundreds of real dollars as i have to dump land to get away from jerks who impede onto the land i pay for and i cannot get any help to tend to them so they get to use my land free of charge and i cant use my land i pay for so that they can use it and to get out from under tier monthly payment. i will keep the 40 a month tier and see how the loading goes and hope that it will be fine but if not i will drop it even lower and pay even less a month and i am one who has been willing to pour money into SL and i have in fact poured some thousands into the program since i joined this past october but i wont any more cuz i am getting tired of putting such money into a program that is turning out to be quite the pain.

ok i did what was suggested i do and i will just go on now in hopes things get better as the area i am now in i seem to be amongst a real good bunch of land owners and it seems most are respectful of each other and thats all i ever ask as i do in fact respect others and i hold high regards for property lines and i do not cross mine in any way, shape or form if it means i have to pull my items more into bounds to keep them from hanging over ...
i walk my bounds when i decorate and i make sure not even an edge has crossed.
The problem this time hasnt been due to disrespectful, rude, inconsiderate neighbors but has been due to some change that took place in the update before last.

I'm not sure I see the magic force that is going to stop the Lindex once it reaches L$361/US$1.

The value of the Linden is whatever people are willing to pay for it. If everybody in the game only used their stipend to pay for the cost of the annual account, I could see this happening, but if people use their lindens for other things like buying land or shopping in-game, then the price has no reason to stop at L$361.

Even if people are using their L$ just to pay for the account, why would they suddenly stop when the Lindex hits L$361? I mean the difference between L$360 and L$362 is that instead of making a couple cents profit each year, they lose a couple of cents. Assuming the game is something more than a cheap way to make tiny amounts of money, there's no reason to stop playing.

Ok put this short and sweet folks Land Price way above and beyend Prices is resnable.
for 512sq some one sale price is 25,000L and primtive count same as frist land.
Land price need to be caped big time.!

No it doesn't. If someone's stupid enough to pay $L25,000 for 512 of land, more power to them.

There already is a property tax.. It's called tier. I'm too lazy to look for the quote, but Phillip has even called it a tax.

This is what I'm saying you are misunderstanding. By this reasoning, we should just give everybody millions of dollars so they can buy millions of shirts. How many $L people spend are unimportant. How much they buy is even unimportant. What is important is how much real money you can get for your work. The amount of US$ used to buy $L on Lindex is the indicator of how much the economy as a whole is making. The $L should just be a bartering tool, it is not a measure of wealth in itself, you have to compare it to what else the $L can get you, such as US$. Decrease in sales with an erradication in stipends will not make you less US$. It will only make you less US$ if less US$ are put into the economy. Chances are that the opposite will happen, since people won't be able to get US$.20 worth of stuff free every week.