L$717,618,852 And Growing

Shhh... he hasn't realised that yet... Let him continue to base his "predictions" of the past while everyone else enjoys the present.


Btw... now that it's back to Pre-panic levels, could it still be classed as a dead cat bounce or a honest to goddess recovery?

Ok.... now that ReserveBank has acknowledged in a somewhat elliptical manner that the conventional required elements for Inflation do not exist, we will move on to another issue of interest.


Financial incentives for the raising of prices by the makers of widgets.

RBD states that it is this "lack of incentive" due to zero cost of production, that negates one of the required elements for the presense of inflation, as conventionally defined.

I find this point of view rather hard to fathom. The INCENTIVE to raise prices in world to match that of the raising and falling of the Linden...is the same as it always has been. PROFIT. In this case, since the cost of production is "zero" (a seperate topic) then the PROFIT should only be larger. I myself find this to be a rather FANTASTIC motivation to raise prices. HIGHER PROFITS!

Surely, you must acknowledge that to be an INCENTIVE to raise prices?

True... but put your prices too high, and people say "screw that" and don't buy at all... that's an incentive to NOT raise prices...

Quite a nice little way to control inflation.

Here is the real question... if the price has found a top threshold and now bounces around between say 290 and 330 for the foreseeable future, how long will it take before RBD shuts his pie hole? I mean if his goal is a relatively stable currency and we actually have one, will RBD keep crying to remove the remaining stipends?

I am not concerned with consumer backlash, and its value as a DIS-incentive for the raising of prices, only the fact of whether or not an INCENTIVE for the raising of prices exists.

ReserveBank says that there is NO incentive for the raising of prices. Further, that it is this lack of incentive that results in the second element required for Inflation being absent.

I believe there to be one very STRONG incentive indeed. The strongest of incentives possible for any true blooded Capitalist. PROFIT.

Reserve, we must find a new term...because Inflation...is NOT what is going on here. At least, not according to the defintion you gave to us, and the positions you have staked out since then.

In order for our positions to have any value and be respected by others, we must get a NEW definition that we can use for Inflation....or we must ABANDON the use of the word "Inflation" to desribe the rise and fall of the Linden.

Forever?
I wouldn't rule that possibility out...

To be honest, the profit incentive is there, tempered by the possible non-sale through being to greedy for that profit. That's not in doubt.

However, there is a second incentive... not profit, but breaking even. There are people out there who don't care about making money out of SL, but who DO care about making enough L$ to cash out to cover their tier/premium cost...

That incentive, combined with the panic "I have to sell now or it'll lose me money" incentive in May, also combined with the changes to the Lindex and the economy as a whole, resulted in the massive fall in L$ value in May. Now that those changes have gotten into the system itself, the value is back to pre-panic levels and could very well strengthen past it.
Basically, he's basing his predictions on something that doesn't exist anymore... if it did indeed exist in the first place.

The term that RBD should have been using from day one, is Currency Exchange Fluctuation... all part and parcel of a free market exchange system.

As soon as it goes from 290 back to 300 he'll be crying the Lindex is falling.

Unless they get a premium account. Then LL opens the L$ flood gate for them.
A gate that pays 1 premium 10x the amount of a former basic. Which means that 1000 premium accounts is equal to the glut power of 10,000 basic users.

I'll remember this post when it falls back to L$330 and beyond...

Duely noted for when it doesn't....

Rising Prices or Money Supply = Inflation

Which part don't you understand?



Money supply is important because it is linked to inflation by the "monetary exchange equation". In other words, if the money supply grows faster than real GDP growth, inflation is likely to follow.

Many economists argue that one of the main causes of inflation is excessive money supply growth. The origins of this theory lie with Monetarist economists. Perhaps the best known Monetarist is Milton Friedman, and much of the research on this theory was done by him at Chicago University.

This theory of inflation draws on the Quantity Theory of Money. Look up Quantity Theory of Money which suggest that if the amount of money in the economy grows faster than the growth in the level of potential output, then this will feed through to prices. In other words if the money supply grows too fast there will be inflation.

The Quantity Theory of Money states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. According to QTM, if the amount of money in an economy doubles, price levels also double, causing inflation (the percentage rate at which the level of prices is rising in an economy). The consumer therefore pays twice as much for the same amount of the good or service. But unlike the Real World, businesses in SL don't have a cost of production, so there is no financial incentive to raise prices. Because of this, the excess L$ is put up for sale on LindenX. Pushing down its value.

Another way to understand this theory is to recognize that money is like any other commodity: increases in its supply decrease marginal value (the buying capacity of one unit of currency). Thus the continued decline of the Linden Dollar from its highs of L$175 in 2004 to its lows of L$330 in 2006. With over L$700/million in float, you can see the direct correlation between money supply growth and linden dollar valuation decline.

Well....RBD....forgive me....but I am pretty sure if you go back and look at your own post and definition that you provided for INFLATION....


You will see that it is NOT an EITHER, OR definition. Rather, it is CAUSE and EFFECT. Both conditions must be present. I spent quite a bit of time and effort pointing this out to you earlier....it seems that you have simply tried to avoid the issue.

Are you mistaken NOW? Or were you mistaken THEN? Or is it the DEFINITION that you used that was mistaken?

Or did you just not read anything that you do not want to see?

Just to point out to mr economic genius here, but his definition, while correct, most certainly doesn't apply...

You decided to highlight the "increase in money supply" bit, but that's only one of the causes. What you conveniently tried to distract us from is the major part of the definition... the persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money.
As we have NOT seen that happen, there is NO inflation... all we have is Currency Exchange Fluctuations, with the biggest fluctuations caused by panic selling (fueled by those who insist the economy is falling to bits... sound familiar?) and changes to the economy/exchange system...


You keep insisting on using the wrong term, one that has been shown to be incorrect, yet still try to insist that you're right.

Its Either/Or and Cause/Effect... If money supply increases, you get inflation. If money supply remains flat, yet prices rise, you get inflation. And actually, the rising prices then cause money supply expansion.

Everything depends on the economic issue in question. And that issue is the growth of the SL money supply being the driving force behind SL Inflation. Which doesn't appear in prices because of the dynamic of SL not having a cost of production. But inflation is still present and it appears in the form of excess L$ being sold on LindenX. Causing a valuation decline. Or did you just not read anything I've been telling you?

Maybe I should stop calling it "Inflation" and start using the more correct term "Mudflation".

On the other hand, the strengthening of the L$ from a low of 250/$ in 2004 to a high of 175/$ also in 2004 while the money supply was being increased at a rapid rate shows that the correlation is wrong...


Do not make the mistake of insisting that it is just ONE thing that is causing any changes... the entire economy itself and all the thigs that make it up must be considered or your conclusion will be highly inaccurate.

Poor TigerSpan, he just can't see the forest for the trees...

Did it cross your mind that a decline in the purchasing power of money is the result of Inflation? It is an effect. The cause is the money supply growth.


Cause: Expanding the Money Supply
Effect: Decline in the purchasing power of money (aka: Inflation)

Let me repeat and spell it out so a 2/yr old can grasp it.

A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money , caused by an increase in available currency and credit beyond the proportion of available goods and services.

Translation: You have Inflation if the purchasing power of money declines as a result of an increase in the available currency supply.

And the perfect example is Second Life. Linden Labs has grown the money supply to excess. The result has been a decline in the purchasing power of the Linden Dollar. In Sept 2004 L$1000 got you US$5.80. Now in 2006, that same L$1000 will get you just over US$3.00. Classic Example of Money Supply Inflation..

BZZZZT!!! Currency Exchange Rate DOES NOT equal purchasing power of a currency...

Kindy get this into your head... the prices in world have remained stable for many months. The purchasing power of the L$ has remained stable for many months.

By your own translation, that means no inflation at all...



Oh, and continuing to insist that the exchange rate, and the exchange rate alone == inflation is going to show how little you truely understand about economics. (not that it hasn't already )

According to my numbers, SL's Growth Rate has declined by only L$1.4/million linden dollars per week in June. A nice number, but that still means SL needs nearly US$100,000 a month to buy up the newly printed currency just to flat line the linden dollar valuation..


May: L$74,722,420 - L$22,147,473 = L$52,574,947 Pumped Into the Economy
Growth Rate: L$52,574,947 / 5 Pay Weeks = L$10,514,989.4/avg Per Week

June: L$55,950,559 - L$23,532,998 = L$32,417,561 Pump Into The Economy
Growth Rate: L$32,417,561 / 4 Pay Weeks = L$8,104,390.25/avg Per Week

Assuming that none of that money is going to stay IN the economy and that ALL of it will be thrown at the Lindex...

Work on your assumptions, as your current ones are wildly inaccurate...

The original exchange rate was set at level which had no base in reality, and consequently was corrected over time as the content and economy of SL originated and then developed. After all what makes you believe 175:1 exchange rate had some actual meaning or backup in value of any sort?

And as far as how things can decline in value over just two years...

http://www.nbs.sk/MP/MS0601/MS_06_2.HTM

check out the USD:EUR graph at the bottom. If real world currency of a powerful country/economy can lose 30% of value in comparison to another currency in similar period, don't expect virtual currency fare any better when pitted against RL money. As a matter of fact losing just ~45% from the original make-believe level is quite an achievement...

"A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money , caused by an increase in available currency and credit beyond the proportion of available goods and services."

I don't think there has been a major increase in the price of consumer goods in SL.. a few vocal forum voices and thats it - in no way representative of the community.
Most places I've seen have had their prices steady.

Also there hasn't been a decrease in the purchasing power of money. Not in the scope of that definition anyway. When the price in USD to buy L$ is low - this has quite the opposite effect - the ability to buy more L$ per dollar, therefore giving the consumer MORE purchasing power. They can buy MORE L$ for their US buck. Sure, the person SELLING their L$ gets less - but that isn't the consumer.

So really on both counts that definition doesn't really support the conclusions (which never change anyways irrespective of reality).

The exchange rate dropped 17 since this morning. Not exactly the doom and gloom predictions I've been expecting... and seeing how it has been on a slow and steady drop down for nearly a month - I don't really think the 'dead cat bounce' to explain it away either.

- but meh - more of the same doom and gloom predictions we've come to expect on the RBD quest to remove all sources from the economy whilst retaining all possible sinks.

The argument and the desired results are fairly transparent - and droll.

Correct me if I'm wrong, but the original make-believe level was 250/$...

Wouldn't that mean it's only lost 20% of it's exchange value in two years?


It also means that RBD is chosing the wrong start figure in his calculations. Selective facts do not a valid argument make...

10.5 - 8.1 != 1.4 it's 2.4 where I was taught to do maths.

Whilst you're entitled to your opinions RDB, it would be nice if you managed to read the definitions you are so kindly providing and get the details, such as a simple subtraction, right too. It tends to make people see howling errors and assume the rest of your logic is as good.