L$ Deficit Hits L$504,000,000 Annualized!

Guess you didn't see the joke. It was a quip about mercifully ending the 1000 threads on this 'falling L$' subjects...

I wouldn't call almost 20% in 3 months gradual. 5-10% a year is gradual.

Inflation reduces demand for currency on the Lindex, as people avoid buying into something that is going to quickly devalue.

Inflation increases supply of currency as people sell their Lindens as quickly as possible on the Lindex to avoid holding onto a quickly devaluing asset.

Both those things are a positive feedback that reinforce even greater exchange rate devaluation. These things can spiral out of control, causing hyperinflation (a market crash).


Lets look at the good effects of inflation (from the point of the users):
1. Inflation encourages investment, by discouraging savings. (Assuming there is something to invest in!)
2. Inflation is good for people in debt (linden debt, not USD debt).
3. Inflation can be good for SL businesses, who can give wage rate increases that amount to little net effect.
4. Inflation increases velocity, it lubricates the economy.


The bad effects of inflation:
1. The cost of doing business is higher, as the greater amount of trading on Lindex saps USD from people in fees.
2. The potential for hyperinflation through the aforementioned feedback mechanisms.
3. Inflation devalues the income of people on fixed income (stipends)
4. Inflation discourages lenders, or requires them to raise the interest rates they charge.

Inflation is an excellent thing for Linden Lab. A huge boon. They get to print lindens and sell them, to the tune of $100,000+ USD per month. Then they also get the benefits of higher velocity by raking in Lindex fees on the higher volume caused by higher velocity.

Here's a big one: Increasing sinks subsidizes this behavior on the part of Linden Lab, with no benefit to the users of SL.

It doesn't matter if Linden lab denominates land auctions in USD or L$, either way they get the money in cold hard USD. Whether directly from the auction, or by subsidizing the exchange rate which allows them to sell more created lindens with no net inflationary effect.

So who benefits from inflation? Mainly Linden Lab. SL businesses see some benefits from inflation too, but that is offset by higher overhead in fees because they must make smaller Lindex transactions to reduce exposure.

Who loses? Mainly people that rely on stipends as a large part of their income. Everyone loses if hyperinflation ensues. That would seriously discourage investment in content creation in SL.

Gigs Taggart is another smart cookie. Not another Jonas Clone
who can't see the forest for the trees.

Keep on posting Gigs, SL's linden dollar is Inflationary and
heading for Hyper Inflation.

Gigs ain't no fool. He's educated. $treet $marts.

Gigs is Da man... He sk00led Jopsy back into his/her box..

So your answer is to stop stripends, and since the DI and dwell are going, going gone, there would be no new money in the system and your vision of the economy would stabilize. That about right?

Of course with no new money coming in, but the population rising, the money that there is would just sort of move around in a circle, steadily declining due to the existing money sinks.

I still say your entire platform is based on a desire to be a money baron. To corner the market on $L, and set the price to whatever outrageous amount you want and everyone would be forced to drink from the money barons well.

You see the current system as an uncontrollable flood. I see your idea as a lake slowly and steadily drying up as the price of a glass of water goes higher and higher as the lake drops lower and lower.

Your way is death. A slow and painful death.

A lake does not increase from 60mm to 660mm in one year. That is the flood ravaging the SL money supply.

Unfortunately Gigs may be predicting the future right around the corner, it wont take much to destabilize this economy.

Gigs, if you want to make a concerted effort to help bring these economic woes to the attention of LL, I will be more than happy to join you. We must do something before it is too late.

LL needs to stop mortgaging our future.

Gigs, lets stop people like Jamie fropm undercutting. That will stop the slide..

I notice you avoid the rest of my post and continue to harp upon your imagined flood.

Gigs-

Thank you... it's hard to express how much I appreciate that you've responded with actual issues. You raised a number of very good points. (and I've raised quite a few typos... *sigh* so much typing so little time)

Okay first: Over the term "Gradual" in an economic cycle as swift as SL's I think it's reasonable to expect an acceleration of any economic trend. As long as the slide is looks more linear than exponential I prefer the term 'gradual'.

You say that devaluation reduces demand for L$. For the few would-be bankers this may be true. For the majority? I disagree. It won't deter casual shoppers, very few 'widget' merchants are raising their prices, so the L$ is holding its buying power here.

It won't deter rent-payers/land-buyers, who, in my experience, buy L$ when needed, not in advance. In RL people will pay ATM fees several times a week rather than carry around $500... despite how silly it is. The same behavior occurs in here SL, and not because of fear of devaluation.

Inflation increases supply of currency as people sell their Lindens as quickly as possible on the Lindex to avoid holding onto a quickly devaluing asset.

I totally agree. And I think that LL benefits from it.

Both those things are a positive feedback that reinforce even greater exchange rate devaluation. These things can spiral out of control, causing hyperinflation (a market crash).

But the threat of devaluation would make people sell at the current rate, not push them to undercut each other. (except certain folks who obviously can't liquidate all the L$'s they sell in a day so they post them for sale at "tomorrow's" expected rate. )

The need for money NOW to cover expenses, particularly land use fees, is what makes people undercut each other. And as long as the demand for USD exceeds what people bring to the Lindex, that competition will result in undercutting and devaluation. And, (unless someone is actively trying to corner the market) it is just as likely to continue even without stipends.

"Capping" the currency by doing away with stipends seems foolish. First, in situations when no one is actively trying to corner the market, you still have the problem where a percetage of the L$ are going to go through the lindex, not once but many times in a short period of days. You can still exhaust your pool of interested buyers long before everyone that wants/needs USD has been satiated... at which point the undercutting and devaluation continues.

Capping the float only serves to introduce the risk of tampering with the L$ value which is more likely to drive off L$ buyers, slow down the lindex, deprive small merchants for shoppers, who then can't make tier and then go out of business, they liquidate their land, cash out and the cycle of destruction continues until the market manipulator gets the price he wants.

I would rather have perpetual devaluation than that.

So who benefits from inflation? Mainly Linden Lab. SL businesses see some benefits from inflation too, but that is offset by higher overhead in fees because they must make smaller Lindex transactions to reduce exposure.

Certainly LL benefits. Why should LL encourage a system that empowers in-world bankers to tie up funds that could be going through the Lindex and generating revenue for them?

I have no problem with LL maintaining and utilizing indirect ways to generate revenue to keep SecondLife going. Setting up a model that encourages transactions, for which they receive fees gives players that are paying those fees the choice to use those services... or not.

The alternative is that LL finds more DIRECT ways to generate revenue. Like selling minted L$ directly via the Lindex, which I object to. Not because it exacerbates inflation but because it puts LL into direct competition with Merchants for consumer USD's. LL should profit when the merchants in SL profit... and not compete.

Who loses? Mainly people that rely on stipends as a large part of their income. Everyone loses if hyperinflation ensues. That would seriously discourage investment in content creation in SL.

Wasn't the whole point of this argument to justify killing stipends?

At least in not-quite-hyperinflation economy... people will still be able to upload a few items and take a few snapshots every week without having to visit the Lindex. As the float increases the overall impact of additional L$'s becomes marginal, unless the population is increasing exponentially as well, which brings L$ buyers with it.

And... I think it would it more accurate to say that hyperinflation would discourage land ownership and land renting for people looking to try profiting in SecondLife. So the creation of 'commercial' content will definitely suffer, and LL's hopes of having SL treated seriously as a platform will suffer too. Content creation will continue though, regardless. Most of the outstanding content I've seen in SecondLife has predominantely non-commercial... with only a few exceptions.

Hyperinflation, if it happens, will be because of desperate undercutting from large land holders trying to cover tier fees by competing for an inadequate supply of USD. Certain types will blame it on stipends if/when it happens of course, but I think we've already seen that the L$ can handle a great deal of watering down, who can say that it can't seriously take a lot more?

Thank you again... wish I could have responded to each of your points, but I'm now out of time... if I've ommited a key issue, please call me on it! I really do appreciate your counter-points!

Can I just chime in for a second to say that this ENTIRE THREAD is ABSOLUTELY REDICULOUS? Dwell is being phased out, which will reduce currency in-flow by about 10%. This will make everything wonderful again for a while, unless by some odd chance there is some sort of a mass (and I do mean MASS) exodus from SL.

Put more simply, all of this fear mongering is pointless and counterproductive. LL will not allow these predictions to come true. They have deomonstrated this by reducing supply of new money by around 10%, which, as near as I can figure, is just about the perfect amount for now.

Anyone selling L$ on the advice of these fear mongers is STUPID. That's right, you're a bunch of SUCKERS if you listen to these silly extremists, and you diserve the loss that you'll take! If anyone insists on accepting the crazy propoganda in this thread as fact, please contact me to sell your L$ directly.

This way, you won't have to eat the LindeX selling fee too. It'll lessen the impact on your wallet, and thus lessen your depression when you see what the L$ is valued at soon and calculate how much value you lost by panicing and buying into the ReserveBank propoganda machine. Thank you for taking the time to read my post, and please don't be a SUCKER!

This behavior makes absolutely no sense to me. I buy my L$ on the SLex because I don't pay the $0.30 fee if purchasing small quantities (currently 312.3 exchange rate regardless how small the quantity is). Today when watching the Lindex very closely I was astounded to see as little as 150 lindens being purchased. There were numerous purchases of 1000 lindens. Even when the linden was selling for L$318/1 that quantity of lindens was netting the buyer an effective rate of L$290.3/1 or paying a commision of 8.7% for the purchase. If that buyer thinks he can get his next 1000 Lindens for L$325 and does the same thing he will still only get an effective rate of L$296.1/1. Buying 5000 Linden at L$318/1 will yield an effective rate of L$312.0/1 and this nickle and dime buying I see going on when the Linden is rising like now will require these people see a rate of L$344.2/1 before you can get an effective rate of L$312.0/1 buying Linden 1000 at a time.

i'm sleepy and i'm gonna post ideas you hate!

what if they taxed players on premium weekly for the income they recieved. this amount would not exceed the amount of their weekly stipend (500). by this token, i as a merchant in sl would not get a stipend since i make more than this in one day. there are alot of merchants in sl on premium who really wouldn't miss that 500, myself included. tax brackets would not factor in purchases of lindens on lindex, only money recieved from other players in world, and those premium players who rely on their premium stipend for sl income wouldn't come close to the first tax bracket, leaving their 500 intact.

this way they're still giving you stipend also, so still within ToS far as i know...it doesn't say anything about them not ever taxing your lindens if nothing else, i don't think it's a terrible idea for an additional sink, even if it doesn't totally balance out the influx.

I'm completely in favor or more/better syncs. If it were my system I'd make it more appealing to sell via the lindex by reducing the fees, to encourage more people to use the lindex than it's competitors... and splitting the fee in half... part L$ part US$ to effectively create a new sync taking L$ out of circulation.

We'll see how things play out without dwell income soon enough. One thing at a time. (Mind you, my money is still on the "continuing with harmless devaluation" outcome.)

Unfortunately undercutting never takes a vacation Shaun. The -real- problem never takes a vacation.

Unfortunately, you've not had the inclination, in all of the time you've been posting here, to learn about how supply and demand work. This is a market in action. People continue to post competatively better prices until their orders get hit. What you call "undercutting", the real world calls "insufficient demand".

I know that I've strayed from the point a bit. My point in posting was to say that there's been a 10%/month change in supply, which WILL help. I thought I would give a basic primer on supply and demand though.

What you're seeing and mis-interpreting is simply a lack of enough demand for the current supply though. If demand were in equalibrium, orders below whatever volume level the demand will fill, would still get filled regardless of price (to a point of course, the point probably being around 190/1). It's the quantity that's at issue, not the price.

Essentially, since people have more QUANTITY to that they must trade for in X time than volume allows, they enter a more competative PRICE, so that they can get filled by the buying power that will be available within X time. Does this help a bit? If not I'll try to rephrase.

Beyond that, all of the advice that I can offer people is just not to be a SUCKER and fall for the propoganda being presented in this thread. The SMART money is holding all L$ not required to meet tier until after the dwell phaseout is complete.

Then the ones whining need to create a demand. Cutting stipends -may- do it, but it also bears the disasterous effects of alienating many players. I personally believe that removing stipends would drop 50% of premiums to basic. That would hurt LL quite badly, even if only half that number drop..

So, in other words, cutting stipends would mean increased rate in the short term, but very possible recession and/or disaster in the long term.

I've said nothing about stipends.

I'll be cashing out in the fall after all of this dwell phaseout and a nice slow strengthening of the Linden finally occurs. Then everyone who cashed out at 315 to 1 will regret it.

Hahahahhaah..... Keep on dreaming...
They said the same thing at L$250 and look where
we are today....

Tucks RBD posts away for this fall when rate is back to normal so I can say Hahahaha. Oh I didn't say it wouldn't get worse before it gets better, so don't be going on about how wrong I am when it hits 320 to 1 or 325 to 1, because sometimes it just needs to go bad before things get better. I am waiting for a while because of this.

HA!

See you @ L$500 / $1 USD.

I'm hoping to 1000L / 1USD