Back of the envelope calculations for our economy...

Just to illustrate further my point that there's a lot of inflation coming...

1) There are 40,000 users in SL, roughly.

2) 4400 of those are landholders, and hence, getting a premium account's stipend.

4400 * 500/wk stipend (MINIMUM) = $L2.2 million lindens a week injected into the world.

That leaves 35,600 active accounts that are getting $L50 a week, minimum.

35,600 * $L50/wk stipend (MINIMUM) = $L1,780,000 a week injected into the world.

On average, about 100+ new people sign up for SL every day. Let's lowball it and assume that all of them are basic accounts.

100 people * $L250 * 7 days = $L175,000 a week.

(2,200,000 + 1,780,000 + 175,000) = 4,155,000 * 4 weeks = $L16,620,000 put into the world per month.

So.

A little over SIXTEEN MILLION DOLLARS is being put into the economy every month. This is WITHOUT any sort of stipend bonus... the number is going to be MUCH higher.

Are we to assume that this isn't causing inflation, and hence devaluation of the linden dollar? WTF?

There's no way the current money sinks (ratings and uploads) are offsetting that much money. Yes, you should be increasing the money supply as the population increases. But not that much. That's insane.

That's how I see it.

LF

I agree. And, in a lot of ways, the current system is in place to subsidize consumer behavior (think: shopping) without much need to create, "find a job," or GOM/IGE Linden dollars.

This makes sense in some respects, since it's ludicrous to force everyone down the above venues for money in what some people still call a game (I don't). Instead, I've been following a few of the solutions that have been brought up in other threads.

Here's my personal favorite:

/130/81/57237/1.html

I agree. Without money sinks, we're already starting to see the effects of inflation. There needs to be some mechanism to drain L$ from the economy, or it'll end up like There's.

The lottery is a cool idea.

I think the answer is to do what Shaun Altman is doing. slsolutions.org is a savior for the economy in many many ways.

Basically, there is a current account deficit with SL versus the real world. This is slowly draining the value out of L$.

To counterbalance this, we need investment INTO SL. Land is one way we do this, another way is SL stocks and bonds.

Er, great, except that doesn't remove money from the economy whatsoever.

I like it. But on the back of my envelope I also have maybe 8 sims a week sold for US$ which then immediately start selling for L$, which are then forever locked in.
Say 30 sims a month, each 60000m at L$5/m or L$300,000 per sim.
Thats NINE MILLION DOLLARS a month being taken out of the cash part of the economy.

Frozen permanently into Land Value.

Balances things up a bit, don't you think ? Even though both figures are very very rough.

Er, where is it going? To players.

If money goes to players, it's not being taken out of circulation. It's being immediately put on GOM/IGE, and hence back into circulation.

LF

This "investment" into SL is not investment in any sense we typically think of. If I buy shares of cyberland, I've merely transferred to Mr. Altman (and crew?). M0 is not changed at all by this (call it M1 if you wish, it doesn't change the money supply).

If cyberland uses the funds to buy land from a land broker, 'tis merely another transfer and M0 again remains the same.

If cyberland decides to (purely hypothetically) cash out all holdings, again, no change in M0 as the L$ are just tranferred to another player: GOM, IGE, etc.

Linden sinks are the only way that M0 changes, and nothing that any player can do changes M0 except for Linden sinks, land buys (which are increasingly broker to player), rates (which seem to be on the way out) and uploads are the only sinks.

I noticed one confound in the original analysis, the 35,600 accounts may well be inactive in which case no L$50 stipend is given on weeks of inactivity. I think 5000 active x L$50 would be a highball estimate from basic accounts (per week) a generous estimate. I don't think this invalidates the conclusion that there need to be sinks. Assuming there is inflation, which I'm not in a position to determine.

And please forgive me if cyberland is changing the supply in a way I don't understand, because I admit I don't understand what cyberland does aside from act as a L$ holding company - but would love to know if I'm mistaken.

Another thought would be to churn out low-cost merchandise for Linden dollars, similar to what real world arcades and carnivals do with "tickets."

For example, L$4000 (~$15-16 USD equivalent) could net you a real Second Life T-shirt directly from Linden Labs. Assuming a partnership deal with a printing organization, such items require only pocket change in labor to produce.

I've suggested this before but I'll keep throwing it out there... The only people who should be eligible to receive a stipend are people who make below a certain threshold value of L$ the previous week (through sales). If I make L$50K the week before, why in hell is LL paying me a stipend? That's just nuts. Obviously I don't need the welfare check. I'd say that anyone who makes more than L$2500 in a week shouldn't get a stipend the next week.

Easily gamed.

I make all my vendors owned by Alty McAlterson. I get my stipend, he holds all my money.

LF

Bah! Good point, LF.

Perhaps, but that's still one stipend per two accounts, rather than the two stipends you would recieve otherwise. Personally, I think it's a good idea, but I suspect it would do so little to affect the economy, that in all honesty, I'm not sure if it's really worth the time investment.

Basics only get a stipend if they've logged in during the previous week. Most of the 36,000 will not have done so.

Maybe there can be roving bands of Lindens that randomly mug people and steal their wallets.

That'll add some drama to the game, and be an effective sink too. Great Idea!

I think that what was being referred to was the effect of L$ being "locked up" in player accounts for medium to long durations. Cyberland in perticular doesn't do a lot of this at the moment, but the cumulative effects could be interesting as the exchange grows its list of public companies and more L$ becomes "locked" into corporate coffers for extended periods.

For the purposes of buying L$ or selling L$, L$ that you can't access is just as good as being non-existant. One could actually start a resident-managed "L$ reserve" in much the same way if one were willing to risk a non-trivial amount of USD that wouldn't nesicarially ever be recoverable. I don't think it would be a good business proposition. In fact it would likely be a train wreck to use USD to do something like this. Purely for the sake of public good-will it could be done though.

Also, as an interesting aside, if you were to buy the cheapest shares on the market at the moment you'd be buying from a fellow investor rather than Cyberland. At our first shareholder meeting, we raised the company offer price to L$20.07/share in order to (among other equally important things) open up the door to more open-market activity. I agree though, no net change to L$ here.



Outside of liquidating a broker, the only "broker" Cyberland generally buys land from is Linden Lab. If it were possible to do more of this using L$ we'd be thrilled to, but I'm sure they'd rather have $1,000.00+ rather than L$300,000 or so. None of the three mergers we've done to-date involved any cash though.



We're actually doing this on a constant basis in order to bid USD auctions. Agree, no net change.



Regarding nothing that a player "CAN" do, see above. My personal feeling is in-line with what yours seems to be, which is that many more sinks are needed if the currency is to have a "stable" conversion ratio at around $4.00 for L$1,000. HOWEVER, there is one very important thing that we're not taking into consideration here which is how GOM's new partial fills have effected the L$ value. It could be that LL is doing a fine job of managing inflation and it isn't the issue at all. They're so secretive in some areas that it's hard to really tell, but consider this:

GOM's partial fills have had a clear impact. I think we could take this two ways. One is that through greater market efficiency, the L$ has found its true value, which wasn't what we thought it was. The other side of the coin is that implementing a partial-fill system that puts every L$ at a certain price into the same "bucket", without proxying end users through "brokers" or "market makers", may have been a train wreck.

I'm in the second camp. When I first saw the partial fill system I loved it. It's a pure best-price-available system regardless of how much L$ you want to buy or sell. This is great, I love it, and I think they should keep it. I've come to regard another aspect of it with a certain level of disgust though, which is the unrestricted ability of the end-user to trade "on the floor" in this new best-price-available system.

Let's face it, most people want instant gratification, yet they're still allowed to post sell orders rather than filling buy orders. I think that this, coupled with people not wanting to wait in line behind millions of L$ to get THEIR price, is what's causing a lot of this slide. They just throw their L$ up one cent lower then the current "best price available" and the chain-reaction continues. In short, I think a lot of this slide is more an outcry over a lack of instant liquidity than anything else.

I think that if GOM would sell "seats" (for a pretty penny) to "brokers" who must also commit to a certain trading volume (variable, based on recent market history) or be at risk of losing their seat, a lot of this would correct itself. These "brokers" would then be able to trade "on the floor" at GOM by having the ability to both post and fill orders. People like you and me would then simply buy and sell L$ through this proxy at the best price available. Or, if the brokers' pricing is out of line, NOT buy and sell L$ thus causing them to miss their quota. This would obviously still be a free market, but without the chain-reaction train wreck of anyone and everyone being allowed to show up and post orders outside the bounds of what consumers are really willing to trade at.

All of this said, I do think inflation is playing some role as well. I don't KNOW, but it is my feeling. I do however continue to place my faith in Linden Lab to step in and correct the inflationary situation if it gets out of line. At the end of the day I guess we don't really know if we're there yet, or if they are going to correct it again or not, since they won't let us see a lot of the good economic data we'd need to in order to figure this out. All we have are best guesses.



I don't think it invalidates the conclusion either. However it does go to farther illustrate the fact that all we have are best guesses due to LL not providing this type of data directly.



We don't have much impact on the currency supply, but see above for possible future (cumulative) effects. Along those lines, we don't act as an L$ holding company to any great extent. We act more as an L$ using company. We use L$ to buy land, and then we sell that land profitably, providing a long-term revenue stream to the company and through that providing dividends to shareholders. Whatever revenue doesn't evaporate to managment fees and shareholder dividends is routed right back into the company's "checkbook" to start the process all over again at the land buying stage.

Bingo! You hit the nail on the head.

That doesn't fix the problem. If the brokers aren't selling at what people are selling at, then they're just skimming the RL$ for themselves. Say for instance I'm willing to sell L$ at $4.00. If the brokers are only willing to sell them off at $5.00 to keep price artificially high, that means the $1.00 (minus whatever GOMs comission is) is going to the broker. In real life there is a flat fee for executing an order. The price in the market is totally dictated by what someone is willing to sell for / buy at.

Basically you're suggesting GOM become another IGE, except that they contract out buying and selling to other people and take brokerage fees in exchange. All this would lead to is another market being created where people could sell at the price they chose. (a copy of what GOM is now.) Unlike stocks listed on an exchange there's no lock in to GOM what so ever. If people feel they're not getting a good deal at GOM, then someone will come along to replace them. And from GOMs perspective, I think they'd rather get the comission off the listings (which are charged per block, not % of sale price) than be replaced by someone who does the what they use to do.

Summary: Unless the brokers are willing to buy/sell at whatever price the customers want, then they're going to be side stepped. And if they do sell at the price customers want the slide will continue, the only difference being that instead of having a nice automated system to fill orders, people now have deal with brokers who may or may not be available. Somehow that doesn't seem like an improvement.

It's quite common for people who want to sell something now to take a small loss on it in exchange for instant cash. That's not such a problem.

The real problem is that the economy is saturated with Linden$ well beyond demand for them. All MMOs from the days of Ultima Online have had this problem. If there's unlimited inflow of currency (whether through killing monsters, stipends, crafts, what not) and there is outflow, inflation will ensue and prices will inflate to compensate.

The only game that has ever solved this problem effectively is Everquest. There are so many manditory payouts to the system for item repairs and consumable resources and the amount of effort to obtain gold is pretty steep.

SL has no manditory payouts. What does someone have to pay to play SL? $9.95 once and for all. Aside from land, they can now experience the entirity of the game. Even on a premium account land is currently maintained by paying real $ as tier. While I'm sure Linden prefers to be paid in real $, there's no drain on the in game economy from it.

The slide that's occuring is due to ever increasing supply... Do you think oil would be at $67 a barrel if we had billions of barrels of it laying around, burning it in my car only transfered it back to a gas station, and a constant steady supply was added for every one who wants to use it? Eventually the stuff would be worthless.

Only supply and demand will change the L$.

Fewer payouts and more things to spend money on / buy / invest in.

Fewer payouts runs the risk of disrupting the economy.

Right now we need to invest in groups of people creating value (real value, that is).

These groups can then go on to create content / services for people to buy.

Thus, we are hitting it two ways: investing and things to spend money on.

Yes, shareholders of L$ can dump their shares, but then they can't enjoy their capital-tax free appreciation in value. So, they leave their money in SL.

This is how the current account deficit in the US is funded, btw, people are investing in the US by buying stocks and bonds. Well, and because a lot of assets are traded in USD, like oil, for example. (Which silly Saddam should never have done.. sell oil in Euros .. bad bad Saddam)

Another idea is that LL could partner and market GOM to users better .. thus increasing demand.

You are absolutely right, Lordfly. Which is why the post disappeared while you were writing your reply. I re-read it after posting, and realised immediately that I was talking rubbish. I hoped I had deleted it before anyone had read it. But when I come back I find I wasn't quick enough - there my foolishness is - quoted. Ah well, guess I deserve it.

Not as foolish as you think, Ellie.

Anshe has grown her empire based on her original investment. Yes, she does cycle the L$ out via GOM (and her own stuff), but she usually puts it right back into SL to grow her empire.

As long as she keeps up that investment cycle, then selling land to her is turning L$ into land.

True, a percentage she siphons off for other usages, but it can't be so much that she isn't growing the business. When she does stop growing the business, then she's no longer converting L$ into land. When she starts downsizing the business, then she's turning land into L$ and then inflation will occur.

Under my proposal they'd have to place orders at the BEST PRICES that consumers are willing to take, or end up missing volume requirements. That's why I suggested the rolling volume requirements. There just seems to be a difference between the REAL best price that people are willing to pay and what's going on now.

I'll use myself as one example. Not too long ago, I had 500 blocks listed at $3.84. I made my way to the top of the $3.84 list and churned through all but 96 blocks. Then the price went SCREAMING down as far as $3.66. It stayed so long in the $3.75 range that I eventually gave up on $3.84 coming back in the near future and moved my own remaing blocks down to $3.76 I think, one cent below the best buying price at the moment.

What I see happening here is people wanting instant gratification ALSO not wanting to fill a buy order at a few cents lower than the best selling price. Since they're allowed to post an order, they just throw a sell order up there one cent lower than the current "best price", artificially pushing BOTH sides of the market down in a chain reaction.

Let's look at this from the perspective of what people are WILLING to pay and thus what the best available prices SHOULD be hovering around. I will use IGE for my example, as they seem to do a pretty good business. IGE is currently selling L$ for anywhere from $4.10 to $4.60. Obviously people are willing to pay it. Let's split the difference and say that on an open market people would be WILLING to pay AROUND $4.35 if it weren't for chain-reaction sell orders artificially pushing down on both sides of the market.

In fact, let's take this even farther and say L$ brokers became robber barons with a HUGE (by current standards, yes, HUGE) $0.20 spread. This would have the best SELLING price hovering AROUND $4.15. I think it's fair to say that the best selling price has been pushed down somewhere between $0.50 and $0.60 artificially, in 1 cent increments, due to people not wanting to take a $0.03 hit filling a buy order rather than placing a sell order. When this happens, it of course has the same chain-reaction effect on the buy side as people continue to move their buy offers down 3 cents or so below the sell offers.

I can also tell you for certain as an L$ seller, I would rather sell thru a broker proxy at around 4.15 than have the "power" and "control" of posting my own sell orders at 3.76. Multiple brokers who have volume requirements to meet and risk VERY NASTY things possibly happening if they don't meet them will ensure that the market remains free and open. However, these brokers would also know just how the market moves, know what they're doing, know almost EXACTLY how long it will take to churn through a perticular price and will be less likely to do silly things than an average person like you or me.

Also, why would you have to wait to buy or sell L$ rather than doing it instantly if you proxied through a broker? Brokers would post the orders on the market, and people like you and I would fill them. Same way as now, the L$ would just proxy through high volume traders on its way from the wanted side back to the for sale side.

Anyhow, this is all just one fox's thoughts and obviously everyone else's mileage varies. That's all well and good, and at any rate, the artificial "best price" on GOM is just one small aspect of this thread and I didn't mean to spin it off. Sorry about that. I hope we'll be able to come back on topic.