Predictable L$ deflation

I'm both surprised and gratified to see the numerous posts popping up on the forums basically stating that LindeX isn't working and bemoaning the resultant downward spiral of the value of the L$. Same posts are predicting financial disaster and even economic collapse if something isn't done soon.

Well, YEAH...

These posts are quite vaild. They're all pointing to a real problem.

The sad thing is... this problem was predicted-- and warned of-- long before it happened, right here in these very forums. I cautioned Linden Lab against an "unregulated stock market approach" during a Town Hall meeting, while LindeX was still a talk-it-over concept... and even before then.

The sad thing is... we had a precedent model in the GOM before LindeX ever sold their first L$. On GOM we had constant deflation problems with the L$ and it was on a serious downward spiral even as GOM closed and LindeX opened.

The sad thing is... these things were predictably obvious, were predicted, came to pass-- doesn't anyone stop to THINK about what they do before they do it? Doesn't anyone ever stop to say, "If we do it this way, what are the foreseeable likely results"?

Maybe Linden Lab needs to hire me (and other folks here like me) to look at intended projects and concepts to see if they're viable. It's always good to have people on staff that can forsee obvious disaster scenarios.

Not trying to bust your chops folks. Just trying to help avoid continued such problems. The idea is to see the problem looming and work to avoid it, not plunge head-long into destruction.

Deflation? Not inflation?

See this thread, post 87:

/130/94/86049/3.html

Inflation, deflation, whatever you want to call it (from your particular point of view)...

Time to get off the semantics wagon and pay attention to the issue.

It's really easy, though. In my country, everything costs a bit more (in local currency) every year and year, alas, money itself is worth less and less. That's inflation. If prices go up with time (even a bit) where you live, and money is worth less, you have inflation, too.

L$ is worth less and less, it's the same.

Deflation is the opposite, and I think it's rare in RL, though it can happen. Deflation can also be bad for the economy, though (if too too much).

I don't think that a person who can't differentiate between the these two Economy 101 phrases would be a good economic advisor. (Sorry, this is nothing personal.)

OK Zonax, since you insist...

The value of the L$ is DEcreasing. It's not costing MORE US$ to buy the same L$ (inflation)... it's costing LESS (deflation). Nor is it costing you MORE L$ to purchase an item; merchants are earning LESS for what they sell (deflation).

Again, it's all a matter of how you look at the problem. The subject of this thread is not to discuss your personal concept of grammatically correct terms, nor your view of whether people are qualified (in your humble opinion) to state their views.

The purpose of this thread is to point out a forseeably obvious problem. If you want to discuss concepts of inflation vs deflation, I'd recommend starting your own thread and letting us get back to the subject of this one. K?

A decrease in the value of L$ is only a problem for those with extra that they want to sell...

You're looking at this from the point of view of making money be selling currency. I've said this time and again, but as long as people don't *want* L$, the price will continue to drop. The solution is either to reduce the supply of L$ in existence, or -- prepare to be shocked -- make some compelling content that people want to buy.

Like it or not (and you obviously don't), a floating exchange rate is what has been chosen and what you have to live with. If you are *really* committed to having a fixed stable rate, then why don't you set a price and buy up any orders placed below that? *That* would show a genuine commitment to the cause of a stable exchange rate. And god knows LL isn't going to do it...

Which is why the ball falls squarely in the laps of Linden Lab.

The points you make are quite valid Ricky. Can't argue with any of them. Except of course, for the ones that are just plain loopy.

Fantasies / old wive's tales of SL economy:
* People don't want L$. Of course they do. That's why LindeX exists.
* The price of the L$ must absolutely stay flexible and unregulated. Pish posh.
* People need more compelling content. If that were the case, people wouldn't be buying-- and they surely are. Every time I hear someone make the "compelling content" statement, I have to wonder what planet he's living on. There is plenty of content on SL. Agreed, there can always be more, but that doesn't mean there's a lack of such now.
* If you want to control the market, show your committment by buying up L$. (Hey, you have a few spare hundred thousand US$ laying around?)

The point is, LL economy is in trouble and has been for some months now. They just called in an economist to work on staff to stabilize that economy. You can't build a stable house on an unstable foundation. In like manner, you cannot stabilize an economy based on an unstable L$ (which is exactly what L$ is right now). Stablilize the US$ to L$ conversion rate-- and then you can get busy on stabilizing in-game commerce.

Linden Lab knows the economy isn't working. Players know the economy isn't working. When you have players telling LL "Stop the BASIC stippend"... it's pretty clear people are even willing to make sacrifices to stabilize the economy. But if we just sit back and say, "Oh, this is the way it is and nothing can be done about it"... nothing will be done about it. Positive change doesn't come about by sitting on one's hands.

Wanted to tackle this one separately.

The old "I don't have a lot of extra L$, I don't care about selling L$, so what does it matter to me" philosophy.

Fact is, there are a LOT of people on SL who DO care about it, who do have L$ to sell, some who actually make their living from L$. And they are VERY concerned about the matter.

Take for example the group leader who provides private island sim land rentals at low cost to group members... and now is having trouble getting enough out of the L$ rental fees to pay for the land. That person has the choice of either absorbing the extra cost (sad situation) or charging people more for their homes (which causes friction with group members) or shutting down the land entirely (which some people are doing).

The fact is that SL is an economy-based system. When I first came here I didn't like that idea. But that's how it is and the facts are that the people who do have extra L$ to sell are the very ones that are also providing the land people live on and the merchandise they purchase.

So this affects everyone-- even the people who don't think it does. Merchants and land owners have to be able to convert their L$ to enough US$ to make it worth their while. Otherwise, you want to talk about lack of quality "compelling content"-- just start paying people less for their work, start removing their profit, and see where that content goes.

Yay ! Another FUD by a "great economist" !

Let me choose some words, just for fun :

- downward spiral
- financial disaster
- economic collapse
- soon.
- real problem.
- predicted-- and warned of--
- I cautioned Linden Lab against an "unregulated stock market approach"
- serious downward spiral
- predictably obvious
- were predicted

And finally :
- Linden Lab needs to hire me
- forsee obvious disaster scenarios.
- Just trying to help
- avoid continued such problems.
- destruction.

Awesome !

someone want to explain why my post was pulled??

Ker, did that post actually have some purpose? Totally eludes me.

I like that arugment 'pish posh' no explaination - just that..

Then say 'Hey -- you better back up that argument!'

Bit of a double standard?

And I wonder how many of the people wanting to 'end basic stipend' receive one.. and have an interest in the 'money market'

I think the market is just dandy o.. I don't see any of you feckers complaining when the price is the other way around, or telling folks they have to manipulate the market then.

and for the record I do sell L$ on lindex - I just don't give that big a deal about it..

Hiya Siggy. I'd actually have something to respond to this if it made any sense. Don't recall anyone anywhere saying "you better back up that argument". hmmm



Second bit though... hey, everyone loves to sell high. Seems reasonable that merchants aren't going to complain when business goes well. Seems reasonable they'll start complaining when they can't meet their expenses. It's not all that amazing.

But for the record-- I've been for setting a flat rate for a long time. I'm no economic genius. I sometimes know what works and what doesn't. I've seen a lot of businesses come and go, especially in the computer field. Every once in a while I can put 2 and 2 together. I don't know everything. Sometimes I'm right. Sometimes I'm wrong. That's how it works with just about everyone.

People can agree / disagree all they want. That's what a nice forum debate is all about-- getting the different opinions out there for examination. I try not to question people's intelligence or education. I respect their opinion if they respect mine. If they don't-- their opinon is just as important as the mold on the rock outside.

Glad you liked it.

Intentional, that. Reason: because the arguments I've seen for keeping the "variable L$/US$" methods are just about as valid as "pish posh". No real basis-- just personal opinion. I've read them all over these forums. Some try to provide sceanrios, but never carry them out to logical conclusion and under scrutiny they fall apart. So I've come to a few observations:

* The market isn't set by what buyers are willing to pay for L$. Whether the L$ is at $3.75/m or $4.00/m... people are still going to buy L$. Now that might not hold true if the L$ went up to $6 / 1000... but then, it might. Look at how many are still paying outrageous prices for gasoline rather than boycott the system. People historically (especially in this country) will pay for what they want. "Buyer market", at least when it comes to L$, is an often-shouted concept, but I believe not based in reality.

* The seller majority doesn't control the market either. Most of the sellers are forced to sell at specific rates in order to be able to sell at all. Why? There is always the small minority of sellers that are always willing to undercut the major market in order to sell their L$ now. They don't care about the market, they don't care about the L$. They just sell at that L$1 price below what everyone else is selling for. They cause the downward spiral.

* The most influential (and most responsible) body is the market host... the ones who set up the method for selling L$. In this case, at this time-- that's Linden Lab.

* GOM tried the "stock market" method and the market was all over the place. Either the buyers were griping because the cost of L$ were too high, or the sellers were griping because the cost of L$ were too low. Only time everyone seemed happy was when L$ were selling at $4 / 1000 (which brings an obvious question: why not just set it at $4 / 1000?). GOM closed down (for whatever reason) and no one seemed to suffer the worse. So the logical conclusion seems kind of obvious to me.

* LindeX is using pretty much exactly the same method as GOM, and I've never seen so many posts on the forums about the falling value of the L$ and the economy. It's obvious the method that failed with GOM is also failing with LindeX... at least in the minds of a large number of users (judging by the current number of threads on this issue).

* No one has had the guts to try a set exchange rate for L$/US$. So no one can say whether it will work or not; it's all personal speculation. But one thing that can be said about the concept: it might work (which is more than can be said for the current system).

All seems fairly simple to me. If the current method is causing problems... try something else. Otherwise you're just putting effort into something that's already failed-- twice.

Did your original post have any purpose but increase the FUD ?
I think no, and i point it.

This cannot be stressed enough.

If pork bellies decline in price on the open market that can mean that there aren't as many people desirous of pork bellies (or sunspots or sumptin).

There seems to be a presumption that the declining L$ is some sort of market failure. To my (admittedly novice) eye, either the declining L$ is indicative of declining demand or b) the L$ is normalizing to a more "proper" valuation, or c) sunspots or fear of war in Jessie or hemline lengths.

If (b) is the case, this would be a good argument against command monetary policy where LL declared that the value "should" be 250:1 regardless of what the market says. As LL can't change the federal interest rate (the primary tool of RL minor tweaking) as there is no such rate, all they can do is muck with sources and sinks. I don't think they have nearly enough data to begin money supply manipulation at present. But they may think they do, and that's what matters.

Not personally knowing what "FUD" stands for (is there anyone that can keep track of all these silly abbreviations?)... basically what you're saying is, "Your opinion doesn't agree with mine-- so instead of offering something constructive, I'll just make fun of you."

Sorry I didn't understand. I was looking for a post that had some value.

Disagree all you want. I have never seen so many posts in these forums against the effect LindeX is having on the market. These posts aren't from newbies or mentally-challenged people; they're from people who have been here a while and know how SL operates. The cause of the L$ downward spiral is pretty obvious:

1) LL has allowed a market glut of L$
2) There are always people willing to undercut everyone else in the L$ sales market because they don't really care about the value of the L$ or overall state of the market
3) LL has nothing in place to regulate such issues.

So again, the ball drops right back in the laps of LL. Obviously something is wrong, or LL wouldn't have just hired a professional economist to help work out the problems. If they want to find out where the problem really lies... all they have to do is look at the structure of LindeX. That model was a failure with GOM and it's a failure now.

Fear, uncertainty and doubt (FUD) : http://en.wikipedia.org/wiki/FUD

Basically i say you spread the Fear, uncertainty and doubt using choosen words.

Yesterday, 7Million L$were exchanged, it's a high score.
Isn't it a sign of a healty economy ?

Or... maybe it's a sign of panic because of the dozen of thread describing an economic crisis ?
Maybe both.

some mn ago i saw 3 sellers at 282/US$ for an incredible total amount of... 12000L$ (12k) !
God... isnt it ridiculous ?

PS: i don't claim you do the "FUD marketing technic" like described on wikipedia. I just used the acronym because it's shorter to write and i tought it was well known by all the great economist mind.

I think your right that most people will buy a certain amount of $L between small differences of US$3.75-US$4.00, but there is a limit on how many $L will be bought.



This sounds like your starting with the misconception that the sellers are supposed to dream up the price they want. Only so many $L are going to be bought a day. If less $L are being bought than the number $L for sale, then the only way to sell your $L is be cheaper than everyone else. If you set the rate at one spot, you will still have $L sell at that rate, but the time it takes to get your $L sold would get longer and longer. This is common sense economics.



Just because Linden Labs wants L$250 = US$1.00 doesn't mean everyone else will put that specific value on the $L. The value people put on the $L changes from person to person. That is one of the first things you learn in any economic class is that there are a certain number of people willing to pay at an entire range of prices. There isn't just one value to the $L, and it will always change as the value of things in SL change for each individual person.



GOM did not close down because of the value of the $L. They didn't operate based on the value of the $L, they made money based on how much money changed hand. More money will change hands with a variable rate than with a set rate. GOM stated they closed down because of the unreliablility of communication between Second Life and their website. It probably had something to do with Linden Labs as competition as well. It did not have to do with a falling $L. People didn't suffer the worse, because Lindex opened up. If I was going to be forced to sell at the fixed rates the other sites offered, I would of left SL for good. I would of been hurt if Lindex wasn't similar to GOM.



Lindex is not the same method as GOM, but I will come back to that. The $L has been falling since before Christmas, but for a while the $L was more stable than ever, and recently the market seems to be turning up. Now the difference between GOM and Lindex is that you do not have limit buy orders. Limit buy orders cause people to take money they got from people wanting to sell cheap and place them at higher prices. There is no method to absorb downward pressure, and I think if the lack of limit buy orders stays the way it is, there will be danger of large drops in the future without absorbtion.



Anshe Chung and IGE both sold at fixed rates, but even they had to change the values that they bought and sold for over time. The value of everything changes over time. You can never get around that. To say I'm going to set one price on something and assume it will be always worth that price is ignoring the fact that economies are dynamic. SL is tied into economies all around the world at the same time, do you really expect everything to stay the same?

Philip mention various times though that he would adjust the money supply and money sink to keep the L$ value stable. He mention 250 L$ per US$ as target rate. If he would have said "let the market decide" it would have been different situation, but he made the implicit promise that if you keep the L$ you will not face the strong long term devaluation. He said he would be there watch it.

Compare his latest statement .

A statement like that can of course be interpreted in many different ways. It is hard to read any kind of guarantee (inside a fluctuation range of 20% or so) into it, IMHO.

Controlling the supply of money is different than making the Lindex only sell at one rate as Wayfinder wishes to do. I hope that Phillip truly is trying to adjust the money supply, as this would solve the problem and not the symptoms. Setting it so that everyone has to wait in one big line to get their $L sold at 250$L/US$1 is not what will fix the economy, ecspecially if that becomes a policy that replaces the idea of controlling the money supply. All it will do is make the Lindex worthless. Would you have ever set up your prices on your website, and then said ok I don't need to ever change them now?

You can't expect things to stay perfectly stable at one rate, no matter who is in charge, but the changes in the money supply should at least be done to effect the market. Eventually stipends are going to have to be abandoned completely as it will never work long term to explode the number of $L in circulation faster than the population grows.

I interpret his statement as meaning "I have no idea what I'm talking about".

I asked for clarification on his numbers (which I cannot, for the life of me, figure out how he determined), but it never came.

My guess is that they work on ideals. The ideal situation in their mind is the $L being L$250/US$1. A twenty percent acceptable movement of the $L both up and down from this ideal mark would allow the $L to move between $L200/US$1 and $L300/US$1. He is still wrong as the peak is L$170.88/US$1, but most of the time the $L has been in this large range of values. You are right though, he needs to clarify what he means by 20% movement, and about what time frames he is looking at when measuring the movement of the $L. If they never get rid of stipends, the $L will eventually break below $L300/US$1, though it won't be a straight road down. We will still have upswings. I think we almost had an upswing this weekend, but we are always fighting the problem that people can't wait forever to sell their $L, and both premium and basic accounts are getting paid to play Second Life.