1. This article is right on target. Nothing to add.

Posted at 12:39PM on Aug 3rd 2007 by Concord Comet

2. From the article:
"It is actually the small, perpetual budget deficit that reveals something quite sinister. Unlike L$ sales on the LindeX, they do not reflect a flow of real wealth into Second Life. Instead, they are created by Linden to represent wealth, but no economic production was involved in creating them. These deficits occur when the weekly L$ stipends Linden pays to premium residents exceed its revenues from land rentals and other administrative services it provides to residents. In order to fund the deficits, Linden creates new L$ and injects them into Second Life."
She stipends are absolutely neglectable. No way tier payments are eaten up by stipends.

Since the whole article is based on that, can we ignore it as well?

Or can someone explain to me where I'm wrong - please?

Posted at 2:41PM on Aug 3rd 2007 by Juliet Ceres

3. "She stipends are absolutely neglectable. No way tier payments are eaten up by stipends."

Gosh...

That should be:

"Stipends are absolutely neglectable. No way tier payments are eaten up by them."

Posted at 2:49PM on Aug 3rd 2007 by Juliet Ceres

4. Also:

"If Linden wants to prevent this from happening and foster a stable, growing economy within Second Life, it should apply the lessons of Austrian economics to its policies: abolish restrictions on content, strengthen the ability of residents to enforce their property rights, and, most important, tie the L$ to a real-world commodity money backed by 100% reserves."

As far as I know most european countries don't have their currency backed by any reserves. And enforcing property rights has brought us the RIAA/MPAA vs the common man lawsuits.
What is this guy talking about?

Posted at 3:08PM on Aug 3rd 2007 by Juliet Ceres

5. This article does not offer up enough data to reach the conclusions it has, and ignores a basic, crucial fact: In order for a currency to remain stable, the total money supply needs to grow in proportion to the *total* economy, not just the portion occupied by the government. In the U.S. this growth is provided by the central banks in the form of loans to other banks, and from there to industry and commerce. We could probably argue all day about who really benefits from this procedure, but the simple difference here is that Linden Lab replaces the money supply shortfall in the economic cycle by handing it directly to consumers rather than going through the banking middlemen.

The notion that Linden Lab's "deficit spending" is a significant factor in SL's economy is a red herring.
As long as they keep the total supply growing in proportion to the economy we are not going to see a panic like the article predicts - that would only happen if the economy were suddenly crashing anyway.

Posted at 3:13PM on Aug 3rd 2007 by Ananda

6. Seems to me like the issues raised in the article can be summarized in two questions: "What if a whole bunch of people suddenly cashed out their Lindens?" and "What if Linden Labs decreased, perhaps significantly, its weekly stipend?"

Posted at 4:25PM on Aug 3rd 2007 by Alan Hearn

7. Once again - stipend are completely insignificant.
300L per week equals roughly 5 bucks per month. Every premium resident pays 9 USD per month or a little less depending on if he or she pays quarteryearly or for the whole year. But deficits can not appear because of stipends alone.
Also premium members are more or less pretty insignificant themselves if you look at the numbers.

Posted at 5:49PM on Aug 3rd 2007 by Juliet Ceres

8. Alan, you may not know, but LL has significantly reduced weekly stipends.

They used to be L$500+bonuses for premiums, L$50+bonuses for basic members. Bonuses for ratings went away about 2 years ago.

Basic stipends went, and premiums went down to L$400 about a year ago. Premiums down to L$300 roughly 6 months ago.

The "cashing L$ out" issue is an interesting one... how do we cash out?

Let's pretend I've got L$1,000,000. That's about US$4,000 give or take if I can sell it. But, I can't "cash it out" I can only swap it for US$ with someone that is willing to buy them. I suppose the same is true on a global scale too, if I have a very weak currency, Zimbabwe Dollars say, I struggle to find a buyer, but at least I have a few billion potential purchasers. In SL, I have a few hundred thousand.

Also whatever RL currency I have, I can burn, I can, theoretically, take millions of US$ out of circulation in a big bonfire - I suspect Fort Knox does just this, I know the Bank of England does with old notes. L$, I can't do that with, even if I set fire to the machines with the database in them.

How these affect the analysis I don't know, but they do seem rather unusual when compared to other currencies.

Posted at 11:55PM on Aug 3rd 2007 by Eloise Pasteur

9. The Mises piece seems to be founded on a few deeply inaccurate assumptions. The most egregious is that Linden Lab is the party buying L$ with USD. Since the whole prediction of economic collapse seems to be hinged on that one item, I'm not sure I can put a lot of faith in it.

Posted at 3:24AM on Aug 4th 2007 by Tateru Nino

10. Juliet wrote, "The stipends are absolutely neglectable. No way tier payments are eaten up by stipends. Since the whole article is based on that, can we ignore it as well? Or can someone explain to me where I'm wrong - please?"

The article addressed this. The issue is the SL economy, not LL. Tier payments are made outside of the SL economy; they go to LL, which presumably uses them to pay salaries, maintain equipment, etc. Stipends, on the other hand, are money pumped into the SL economy.

Take a look at the economic statistics for July. LL pumped almost L$350M into SL, and took out only about L$100M. That's L$250M per month being added to the SL economy's money supply. Consider also the fact that millions of L$ per day are sold by LL, further inflating the money supply. When people "cash out" their L$, however, they are not taking any of those L$ out of the economy--they are rather transferring them to some other avatar. The article questions--not strongly enough, IMO--whether LL would be as willing to pay US$ for L$ should the economy head south.

So far SL has been blessed with a growth economy; what will happen if instead of higher and higher concurrency each month the active SL population declines while the money supply continues to grow? Demand for all kinds of goods and land will drop while supply will continue to increase, putting pressure on prices to drop, yet those still active will have more money then needed. They'll start selling L$ to one another at fewer and fewer US$ per L$.

Posted at 12:29PM on Aug 4th 2007 by cbmckinney

11. LL has increased the money supply at a large rate. That the point of the of the piece. We could be heading for trouble if gdp dips. Lower economic output combined with a devaluing of the linden. Small economies die when this happens.

Posted at 11:48AM on Aug 4th 2007 by 12 ah