The Coming Recession . . .

[Borodog]

. . . in Second Life.

Matthew Beller wrote a great article on The Coming Business Cycle in Second Life.

The equivalent of the state in SL is the company that runs it, Linden. Linden controlls the money supply, the Linden Dollar, or L$, which is exchanged on the LindeX at a pegged exchange rate of 270L$ per $1US. $US can be sold for L$ on the LindeX and vice versa.

The kicker is that Linden has been inflating the L$ by around 6% per month, more than doubling per annum. Per Austrian analysis, this is setting SL up for a recession, that could go down in a couple of ways; either Linden will have to stop the credit expansion, causing consumers to tighten their virtual spending and causing virtual businesses to fold, or eventually people will realize the L$ is on shaky grounds, and there will be a flight from the currency to real world wealth, namely the $US.

Since Linden has been inflating the L$ unbacked by real world assets, the company could litterally go bankrupt in the real world if they continue to sell on the LindeX at the fixed exchange rate of 270L$ to $1US. Linden will either have to suspend L$ redemption in $US, or jack the exchange rates. Either way, customers will learn that they don't actually have the wealth they thought they did. People are going to be massively pissed, feel cheated (which they would be), and leave the game. As Beller points out, SL has an economy essentially like a small foreign country depending on tourism. When the tourists realize they've been suckered, the SL economy will experience a steep decline, if not a total collapse.

Beller doesn't go into it, but this is really a perfect virtual experiment in inflationary business cycles, and beautifully models the effects of government intervention in and control of the money supply via an inflationary fiat currency.

Excellent read.

[lehighguy]

As a former MMO gamer, reading about this stuff always intrigues me. In thiry years I can almost gurantee virtual economist is a major at some universities.

[Murilo]

Interesting. I haven't played Second Life but I doubt it has a realistic economy. Linden isn't the state of SL, it's God [img]/images/graemlins/smile.gif[/img]. They have more tools at their disposal than an RL government. They can introduce money sinks for instance. And it sounds like they're already reducing inflation. From wikipedia:

"Currency management
Linden Lab has been gradually lowering the amount of the Linden Dollar stipend paid out to residents. In the past, basic accounts received L$250 starting money plus a L$50 stipend every week that they logged in. The weekly stipend was ended.

In similar fashion, the Premium stipend has fallen from L$500 to L$300 over time, though for each individual the stipend in effect at sign-up time remains in effect."

http://en.wikipedia.org/wiki/Economy_of_Second_Life

[Borodog]

[ QUOTE ]
Interesting. I haven't played Second Life but I doubt it has a realistic economy. Linden isn't the state of SL, it's God [img]/images/graemlins/smile.gif[/img]. They have more tools at their disposal than an RL government. They can introduce money sinks for instance.

[/ QUOTE ]

Of course real life governments can introduce money sinks. All they have to do is raise taxes, or issue bonds, and then destroy the money after it comes in. Or simply delete entries on the central bank's balance books. This technique is employed fairly often actually. In fact it's employed every Christmas. In anticipation of the increased demand for cash balances over the holiday season, reserves are created from nothing, and then after the holidays they are destroyed again. It was employed in the run-up to Y2K; people were freaked out, their demand for cash holdings went up, the Fed created reserves from nothing, and they were quietly deleted with nothing happened.

[ QUOTE ]
And it sounds like they're already reducing inflation. From wikipedia:

"Currency management
Linden Lab has been gradually lowering the amount of the Linden Dollar stipend paid out to residents. In the past, basic accounts received L$250 starting money plus a L$50 stipend every week that they logged in. The weekly stipend was ended.

In similar fashion, the Premium stipend has fallen from L$500 to L$300 over time, though for each individual the stipend in effect at sign-up time remains in effect."

http://en.wikipedia.org/wiki/Economy_of_Second_Life

[/ QUOTE ]

Good. Sounds like they know better than the Federal government.

[govman6767]

There are lots of people in their late 20's to mid 30's who would benefit from a recession and a devaluation of stocks.

As when they put money into their 401ks they would be buying shares cheaper and as we recover from the recession and lousy market those stock shares will go up allowing more income from retirement.

Ppl getting ready to retire now would get hit hard but they should already have their money in safe funds and not the volitile ones.

[Copernicus]

[ QUOTE ]
There are lots of people in their late 20's to mid 30's who would benefit from a recession and a devaluation of stocks.

As when they put money into their 401ks they would be buying shares cheaper and as we recover from the recession and lousy market those stock shares will go up allowing more income from retirement.

Ppl getting ready to retire now would get hit hard but they should already have their money in safe funds and not the volitile ones.

[/ QUOTE ]

Unless they are retiring late, unhealthy or with assets of 12-14 times their gross income, someone nearing retirement should still be at least 60-70% in stocks.

[adios]

[ QUOTE ]
There are lots of people in their late 20's to mid 30's who would benefit from a recession and a devaluation of stocks.

As when they put money into their 401ks they would be buying shares cheaper and as we recover from the recession and lousy market those stock shares will go up allowing more income from retirement.

Ppl getting ready to retire now would get hit hard but they should already have their money in safe funds and not the volitile ones.

[/ QUOTE ]

What you're really saying here is that if people know how a game is "rigged" they can use that knowledge to their benefit. I agree. If you "know" the currency is going in the toilet you can benefit from that knowlegde. The fact is that basically you can go long or short anything.

[Kaj]

[ QUOTE ]
[ QUOTE ]
Interesting. I haven't played Second Life but I doubt it has a realistic economy. Linden isn't the state of SL, it's God [img]/images/graemlins/smile.gif[/img]. They have more tools at their disposal than an RL government. They can introduce money sinks for instance.

[/ QUOTE ]

Of course real life governments can introduce money sinks. All they have to do is raise taxes, or issue bonds, and then destroy the money after it comes in. ..

[/ QUOTE ]

Yeah, you're right ... that sounds like a realistic govt. I'm so sick of govt raising taxes just to burn the money.

[Borodog]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Interesting. I haven't played Second Life but I doubt it has a realistic economy. Linden isn't the state of SL, it's God [img]/images/graemlins/smile.gif[/img]. They have more tools at their disposal than an RL government. They can introduce money sinks for instance.

[/ QUOTE ]

Of course real life governments can introduce money sinks. All they have to do is raise taxes, or issue bonds, and then destroy the money after it comes in. ..

[/ QUOTE ]

Yeah, you're right ... that sounds like a realistic govt. I'm so sick of govt raising taxes just to burn the money.

[/ QUOTE ]

It happened in the 1970s.

[PLOlover]

[ QUOTE ]
Yeah, you're right ... that sounds like a realistic govt. I'm so sick of govt raising taxes just to burn the money.

[/ QUOTE ]

well there was like 8 billion dollars of US currency that went missing in iraq. not that we found there , that we shipped there to (bribe) the locals but no one knows supposedly where it went.