Bank Run in Second Life

Jamie found an interesting bit about a bank run in Second Life. The recent ban on gambling combined with a $12k theft from the 2L stock market has caused people to try to get their money back. The article mentions that this could supposedly affect 8.5M players even tho most estimates of actual hard core players in the system are in the 5 to low 6 figure range.

Comments

Looking for a decent exchange rate

[pegr]

I'd be alright if I could get a decent exchange rate for all these Simolions...

Re:Looking for a decent exchange rate

[SleptThroughClass]

How many Simpsons do you think your Simolions are worth?

Re:Looking for a decent exchange rate

[Anonymous Coward]

SL is full of people ripping each other off or ripping real world works off..
SL can either be fun or dangerous depending on what you take it to be.

Example Someone ripping off investors is no different than Suzanna Soyinka (a resident who runs a sim) selling Copyright works of White wolfs Clan Symbols. Except that the IRL companies do not know about it. Tons of residents sell (C) works and get away with it. But no one stops it.

In game these people actually know about it but they were foolish to invest. They even have their own stock marker where in game companies can IPO. BUt no one really regulates it.. Its a new frontier. Eventually once it becomes web3.0 which i predict SL will be... It will end up being regulated.

Re:Looking for a decent exchange rate

[utopianfiat]

I'd be alright if I could get a decent exchange rate for all these US Dollars...

FIXED.

Re:Looking for a decent exchange rate

[yada21]

We should return to the gold standard. It has more intrinsic worth than paper money, which is just a legalized IUO. You can't print gold.

Re:Looking for a decent exchange rate

[Anonymous Coward]

Gold has no intrinsic worth either.

The gold standard is ridiculous and archaic. There's nothing wrong with fiat currency.

Re:Looking for a decent exchange rate

[Anonymous Coward]

Then we'd have to pay the Chinese in real gold. It would get very expensive. When you're in the shit like we are at the moment, you're better off paying in paper, which you can just devalue when you want.

At the moment we're sponging off the world. No one is doing anything about it, because everyone holds dollars. The minute one creditor breaks, all of them will be after our hide.

Perhaps we could sell Alaska and Louisiana back? Or re-apply to the British to be a colony again and let them take the debt?

Re:Looking for a decent exchange rate

[Psion]

This is a real problem. Plenty of vendors sell the unauthorized work of others. In the case of one "artist", I found images just last night that I recognized from another, real world source, signed on each image by the vendor; the clearest example of IP "theft" I can think of, and certainly a lot more flagrant than any music sharing that pisses off RIAA so much. But I don't think it's that big of an issue. This kind of copyright infringement is rampant throughout the Internet. Look at the content of YouTube, for example. And at the same time this is going on, there are genuine, original artists to be found both in Second Life, and YouTube. To some extent, I see this as an example of the marginal value of both venues for creative expression. There aren't enough people in either environment for plagiarists to be recognized for what they are yet. Additionally, there's a tolerance on the internet for copyright infringement ... in part because organizations like RIAA and MPAA have made pests of themselves and created a "fuck you" attitude towards IP, and also in part because people in general tend to be lazy and inconsiderate of the work of others.

Re:Looking for a decent exchange rate

[Anonymous Coward]

Ha reminds me of some teenager who just left home and is having troubles surviving on his own and is thinking of moving in back with his parents or maybe selling something of great value.

my words of advice is GET A JOB AND STAY OUT OF TROUBLE

Re:Looking for a decent exchange rate

[PurPaBOO]

One creditor, like Iran, perhaps?
Maybe that's the real reason you're threatening them with war, eh? ;-)
Hello modfokkers.

Re:Looking for a decent exchange rate

[John Hurliman]

Going for a +1 funny mod? I guess I don't get the dry sense of humor.

Re:Looking for a decent exchange rate

[RubberDogBone]

The fundamental flaw with gold is that it's only actually valuable because people desire it and it's relatively rare at the same time.

Flaw? Gold is not THAT rare. Major countries sit on huge stockpiles of gold and literal gold mines. If they so chose, they could release massive quantities of gold into the market which would instantly deflate the value of everybody's holdings and crash the economy of any country stuck on the gold standard.

Russia, for example, could dump some of their holdings. This would possibly halve the price of gold, instantly. What, then, would that do to the US economy if it was tied to gold? Chaos. Imagine waking up to find that your investment has lost half its value and you can't even sell it.

Even now, private investors see gold as the miracle investment but it still suffers from the same weakness. A Russia or China or someone else could instantly make that miracle investment into miracle whip.

You don't want to give other countries that kind of power to destroy your financial structure. You don't want to be tied to something you cannot control or worse is controlled by people who oppose you and won't hesitate to undermine what you want.

Re:Looking for a decent exchange rate

[Lord Flipper]

Then we'd have to pay the Chinese in real gold. It would get very expensive.

That's an interesting comment, to me, because it reminds me that back when gold was around $500 US/oz you could actually get triple that in the interior of China. This was due to the fact that there were no regulated exchanges that ordinary Chinese could get near, and the fact that gold is used in tons (understatement) of trinkets that are everywhere in even the peasant-end of Chinese society.

I like your humor, and this is not meant to be some wiseass 'factual' deflation of humor. It just reminded me of the strange 'reality' of gold prices, that's all. And, of course, if there are still such huge discrepancies, then it is quite conceivable that Chinese products would cost far less, if we returned to a gold standard, or found a way to cut deals with villages or provinces ('somehow', not too likely) to take gold instead of dollars or yuan.

As for getting England to 'take us back', um, I love the idea, but the ruling class in the US would laugh at that, due, in no small part to the fact that they already 'monetized' the 'Debt' and laid it on the backs of the US middle class. They don't 'need' England, in other words.

Americans can still rest assured that the US $100 bill is still the main unit of organized crime, worldwide. and yes, the Euro would make more strictly economic sense, but the fact that corruption in high places in America, combined with an international 'police force' and the willingness to employ it, makes the guys behind the 100 dollar bill the real 'guarantors' of the whole crimeland currency issue.

Re:Looking for a decent exchange rate

[Anonymous Coward]

Shut up, jewboy.

2L?

[mwvdlee]

What is this "2L" thing? It's not Second Life, because the whole friggin' world abbreviates that to "SL" and nobody is pedantic enough to come up with a totally new abbreviation when a perfectly good one already exists. So what does it mean?

Re:2L?

[Anonymous Coward]

Too loony. It's synonymous.

Re:2L?

[Blitz22]

it's "SL" in 1337 speak. ("2" is an approximate mirror image of "S")

Re:2L?

[UbuntuDupe]

Yeah, kinda like how no one would ever say "price point" in cases where "price" would convey the same information. ("Sony's failing because they make the PS3's price point too high.") And when challenged on why they felt the need to say "price point", they would never go on a long, condescending diatribe about the economic theory of "price points", dodging the matter of why it was necessary to say it in *that instance*. And they would never feel smug and superior for doing so.

Re:2L?

[karnal]

I'm guessing it's somewhere between "L" and "XL".

Re:2L?

[BMonger]

Not only should they not have used 2L as an abbreviation for Second Life but 2L in regards to Second Life usually means 2 Linden Dollars... that made it a tad confusing for me for a bit.

Re:2L?

[UbuntuDupe]

Wow. That was like, what, a year ago now? Dude, you need to get over it. Holding a grudge is not good for your health. If you were the only person that did that, it would be a grudge. You're not.

And for the record, we were talking about price points in the issue you were referencing. As in "Nintendo should have gone with the $199 price point rather than the $249 price point." I accept that those are price points, as defined under the economic theory. That's not in dispute. What's in dispute is why people feel the need to say "price point" where "price" conveys the same information *in that context* -- i.e., a context where they're not relying on the economic theory behind price points. I think it's because they want to look smarter than they really are by making the terminology more complicated than it needs to be.

And so far, your only explanation is, "Hey, let me give you a condescending lecture about the theory of price points."

If you have a relevant response, I'd like to hear it. Otherwise, just agree, "Okay, 'price' was enough."

Re:2L?

[teh kurisu]

I read "two litre stock market". I read on for a bit before thinking, "that's not right...."

Re:2L?

[Otter]

Yeah, kinda like how no one would ever say "price point" in cases where "price" would convey the same information. ("Sony's failing because they make the PS3's price point too high.")

That's not what "price point" means. Sony is failing because their price is set above attractive price points.

Anyway, nowadays everyone says "Sony's failing because they make the PS3 SKU's price point too high." Where are you writing from -- two weeks ago?

Re:2L?

[vigmeister]

Anyway, nowadays everyone says "Sony's failing because they make the PS3 SKU's price point too high." Where are you writing from -- two weeks ago? Your UID betrays your not being up to date

That should be:
"Sony's failing because their not aware that your a subscriber to the meme that the 80GB SKU's price point is too high"

The word meme bothers me to no end. People abuse the breadth of its definition to help them be vague. And then they proceed to be smug because they are so 'with the times'.

I, for one, welcome our meme-loving overlords

Cheers!

Re:2L?

[Anonymous Coward]

It's quite simple. The sequel to "2L" will be coming out soon, named "3L". They could not use "TL" because that is used by Honda
for it's Acura lineup. They also didn't want "3L" to be teased and called "TOOL".

Re:2L?

[MobileTatsu-NJG]

"What's in dispute is why people feel the need to say "price point" where "price" conveys the same information *in that context* -- i.e., a context where they're not relying on the economic theory behind price points."

The problem is you picked a bad example. The 'price' of the PS3 is different depending on which country you're in. When one says 'price point', they're saying 'whatever price it happens to be in your localization'. When talking about the PS3 on a site like Slashdot, there's some sense in this.

"If you have a relevant response, I'd like to hear it. Otherwise, just agree, "Okay, 'price' was enough."

Dude, seriously, you're fighting the wrong battle. Price point and SKU are both relevent terms. Even if for some reason they weren't, whoop-de-doo. Acting bitter and condescending won't cause somebody to go "whoah, he's right!"

Re:2L?

[Anonymous Coward]

http://dictionary.reference.com/browse/pedantic

Coming up with a new abbreviation for no particular reason when one already exists is not pedantic.

Nice try though, I'm sure you'll use the word correctly someday.

Re:2L?

[Kjella]

*recognizes nick* - No wonder you ever got help with your Ubuntu problems because you're a total asshat, and you keep whining. People well versed in the matter subject don't automatically dumb down their conversation and if we're discussing price theory and the PS3, price points are a necessary precision once you pull up a simple price-quantity curve. If you ever hear two doctors conversing at a gathering, they will probably also continue to use medical terms, even if in that sentence, taken by itself the same information could be conveyed using simpler layman's terms. You also don't want to hear why it's important to be more precise at times or learn anything more about the subject so you can take part in the discussion, instead you accuse them of elitism for failing to make it accessible to you. The world doesn't exist to accomodate you, and it's no wonder people tell you to put a sock in it.

Re:2L?

[GodInHell]

Uhm.. it's what second year law students are called.. (1L, 2L, 3L - then you graduate).

But I doubt that's what he was going for.

-GiH

Re:2L?

[justinlee37]

It didn't even occur to me that you might have a pet grievance against the use of "price point".

Really? Because here's what he wrote in his post that you responded to:

Yeah, kinda like how no one would ever say "price point" in cases where "price" would convey the same information.

You read his single little example as an attack on Sony itself and completely missed the original point. So you've basically just made a serial jackass out of yourself.

Thanks for playing.

Re:2L?

[spamking]

The word meme bothers me to no end. People abuse the breadth of its definition to help them be vague. And then they proceed to be smug because they are so 'with the times'.

I, for one, welcome our meme-loving overlords.

Whatchu got against Tanya http://www.tanyameme.com/Memme?

Re:2L?

[vimh42]

SL? What could Shadow Labyrinth possibly have to do with 2L?

Re:2L?

[cmize]

At least you didn't call it Shadow Labs...

Re:2L?

[Dolly_Llama]

I've always just called it slabs.

Re:2L?

[Anonymous Coward]

Twice(2) the Loser; Loser in the real world, loser in the online virtual world.

Re:2L?

[zspencer]

You must be an American. The entire world knows that 2L means Two Liters.

Re:2L?

[skeeto]

I guess its along the same lines as Cold Stone ice cream or the old Madden football games. Instead of the sensible terms small, medium, large they have "like it", "love it", "gotta have it". Madden has something like "pro", "all-pro", and "madden" difficulty settings, of which I never learned the correct order.

However, when I go into Cold Stone I am split between two difficult choices. One part of me wants to fight their manipulative size naming scheme and say "small" instead of "like it" while the other part wants to follow the clearly documented proper procedure in the customer-employee interface ...

Re:2L?

[morie]

I guess that would be "1337 mirroring slang", where all 2's replace the 5's and vice versa. It is getting quite common these days, isn't it?

Re:2L?

[Anonymous Coward]

^^^ I'm always amazed at this mentality.

In the ten lousy minutes I spend at the Starbucks near work most days, I almost always overhear two or three people who are, likewise, horribly offended by starbucks' use of "short", "tall", "grande", and "venti" for their sizes. Worse, they take it as if it's a personal affront on the part of the kid behind the counter, instead of drek handed down from the marketing types in Seattle; and abuse the employees (Who have no say in the matter.) over it.

Okay... I can understand sticking around Cold Stone... there aren't that many places to get that kind of ice cream near to each other.

But if Starbucks is so offensive to someone; and they have that big chip on their shoulder about the fact that they're *IN* a Starbucks... why the hell are they at Starbucks in the first place? It's not like there's not a Peets a two minute walk away from any given starbucks!

Re:2L?

[halcyon1234]

It means Le Chaim, aka T[w]o Life!

Vast exaggeration

[DaleGlass]

Ginko is a resident run bank, which has nothing really special about it. You can it on their own a href="https://ginkofinancial.com/">website: They only claim to have 18,875 accounts, quite a few of which probably were created as a test. Nowhere near the 8.5 million claimed.

Ginko's problem was their insane interest rates, which IIRC varied somewhere between 100% and 30% per year. I think it was 70% for a quite long time. People accused it of being a Ponzi scheme, which given that enormous interest sounds likely. That's why I never put a cent in it :-)

Re:Vast exaggeration

[mwvdlee]

Ginko also isn't a "bank" in the usual term of the word; it's not regulated or insured in any way and isn't impacted by any of the legal requirements of real world financial institutions. Quite frankly; you're an idiot if you trust them with your money.

Re:Vast exaggeration

[morgan_greywolf]

No, no. What they're saying is that banks like this (not just Ginko, there are others like it) will have an effect on the economy of the game. Think about it. If there were real banks doing this what effect would it have on the economy? Think 1930s America, because that's almost exactly what happened.

The most interesting part of the article to me, though was this tidbit:

Because the Linden dollar has no commodity backing, he says, the Second Life economy is in danger of crashing when provoked by any sufficient shock.

Now, s/Linden dollar/U.S. dollar/ and s/Second Life/U.S./ and the sentence would still be correct. Go ahead, try it. Read it again. Because the U.S. dollar has no commodity backing...

Re:Vast exaggeration

[eln]

Okay, but why would you invest your money in any bank in SL, even if they have reasonable rates? You can get around 5% interest these days in an online savings account, FDIC insured and backed by a real life regulated bank. If you want more, you can go for mutual funds or individual stocks, all of which are regulated. Sure, there's a risk you'll lose everything, but these things are at least regulated so you have some recourse in the unlikely event that your stock broker takes off to Aruba with your money. I would consider investing in a Second Life bank as riskier than putting your whole savings into junk bonds or giving it to some random person on a street corner to invest for you.

If you want to throw some cash in there as a gamble, just to see what happens, and losing that money would not really affect you in any way, then go for it. However, the article tries to suggest that an SL economy crash would seriously affect a lot of people, and I would say anyone who is going to lose their shirt over this was probably going to lose it eventually in some crazy money-making scheme anyway.

Re:Vast exaggeration

[danbert8]

Yes, but you can't pay taxes with Linden dollars. That's the whole reason US money is worth something, because the government guarantees they will accept it in payment of taxes.

Re:Vast exaggeration

[UbuntuDupe]

Okay, I think I have some expertise on this, because I actually ran an SL "bank" (under a broad definition of "bank", but I called it a bank). I can tell you that 100% interest rate in SL is NOT "insane", and I can tell you how to "earn" that kind of interest without a Ponzi scheme.

First, some background: (as of '03 when I played) in SL, they make it so that they "recharge" your money to a certain level each week, sort of like welfare. The day of the week varies between people. So, if you store your money with a trusted party, it will look like you're poor and you'll get money despite not being poor. I believe at the time it was something like LD 7000 that they would recharge you to. My bank served the function of the trusted party: I'd hold their money (through a script) over their recharge day.

Oh, and yes, I was very open about this, and told admins I was doing it. They didn't care.

Now, this doesn't explain how exactly you'd employ someone's money to make more money (like the banks claimed). However, it shows how, using some tricks, you can start with e.g. LD 7000, and "earn" 7000 more each week ... that's definitely more than a 100% yearly effective interest rate!

Re:Vast exaggeration

[ivan256]

I would consider investing in a Second Life bank as riskier than putting your whole savings into junk bonds or giving it to some random person on a street corner to invest for you.

I agree. It's stupid.

But putting a tiny amount of money into a high risk "investment" scheme is riskier than putting your whole savings into junk bonds? Come on. This type of high risk investment can be perfectly reasonable as long as your overall position is well diversified.

Re:Vast exaggeration

[DaleGlass]

Well, let's look at the stats, then.

There are 18,875 accounts. Right now there are 34,822 people logged in (see http://secondlife.com/ ). In the last 60 days, 1,646,830 people logged in. So the total Ginko userbase is not all that great compared to the amount of people who use SL.

Next, it's quite reasonable to assume that a good portion of those 18,875 are by people who put there L$1 (USD $.00370) as a test, then forgot about it.

Now, they say their deposits are L$94,441,798 = USD $349,784. But, Ginko's claims about the amount of deposits were cast into doubt by several people, and that number seems to include interest, that is money they would be expected to give, but which none of the users actually put there.

Average amount of money per account is $349,784 / 18,875 = $18.53

Looking at the SL statistics:
US$ Spent Last 24h: $1,433,039
LindeX Activity Last 24h: $223,005

You can see that even the claimed amount of money isn't all that huge, and after years of operation at the enormous interest they claimed, most of that cash must be accumulated interest anyway.

While I bet some people will lose something quite significant, I don't think it's nearly as big as the article says.

Re:Vast exaggeration

[Anonymous Coward]

Commodity-less money is debt, backed by the productivity of its users. USA = productive. Second Life = not so much.

Re:Vast exaggeration

[Colin Smith]

That's the whole reason US money is worth something, because the government guarantees they will accept it in payment of taxes. Um. Nope. The US dollar is worth something because it has a limited supply.

Money works in the same way as any other commodity. It's like coffee or oil. High demand and low supply increases the value of the currency compared to other commodities, everything appears to become cheaper (deflation). High supply of the currency or reduced demand for it reduces the value of the money with respect to other commodities and everything appears to get more expensive (inflation). You have inflation at the moment because the US government is paying for Iraq by printing (sorry, "borrowing") money.

Now that's been explained, go look up "fractional reserve banking" and "debt based monetary system" on wikipedia.

Re:Vast exaggeration

[CellBlock]

Shouldn't this put millions more LDs out into the "economy" daily, effectively generating SL inflation on the order of Zimbabwe's?

How can their economy have survived this long to even have a "disaster?!"

Re:Vast exaggeration

[CastrTroy]

Yeah, but you could think of it as a high risk investment. If the do indeed have a 70% interest rate, then you could put $1000 in the bank, and take it out a year later and have $1700. Sure you wouldn't want to put all your money in there, but it wouldn't be a terrible idea to put a little bit of money in there. Instead of spending $10 a week on the lottery, you could just drop $500 in there each year, and you'd probably get better returns.

Re:Vast exaggeration

[Control Group]

Yes and no. That's a subset of the reason. The larger reason is that it's illegal in general to demand payment in some other form of currency in preference to the US dollar. That's what the phrase "this note is legal tender for all debts, public and private" means. It means that, if you're going to do business in the US, and if you're going to engage in a financial transaction, you may not refuse the US dollar as a currency to complete the transaction.

It is not legal to require payment in pounds sterling, gold bars, or years of indentured servitude.

Basically, the US dollar is worth anything because the government says it is...which is, ultimately, a function of the citizens of the US saying that it is. Which, ultimately, makes it no different than gold (except, of course, that the finite supply of gold is imposed by the universe, while the finite supply of dollars is imposed by the Fed).

Re:Vast exaggeration

[UbuntuDupe]

Um. Nope. The US dollar is worth something because it has a limited supply.

My snot has limited supply too, but it's not worth anything.

The GP was right for the question he was answering: why do the unbacked, limited-supply US dollars have value? Among other things, because you can pay taxes with them. I would add further, that so many debts are denominated in US dollars. This cascades into a sort of network effect: X people accept dollars, because they can pay debts with them, so MOST people accept dollars because they will be buying from someone, somehow connected to those X people.

And no, debt in and of it self is not morally objectionable. There's nothing wrong with businesses taking out loans for productive purposes for example. The reason a lot of economists like currency based this way is that you don't have to hold productive commodites (like gold, which can be used for hi-tech equipment) out of production, just so it can be used as money.

Your point about government inflating the currency is well-taken, but you're exaggerating its impact. As long as people know the approximate range by which it will expand the money supply, they will demand an interest rate on their lending that eliminates this effect. It's only the *ununsually excessive* expansions that can have distortionary effects, and people's expectations are pretty well adapted based on history.

Re:Vast exaggeration

[morgan_greywolf]

Right. But what would happen if the U.S. dollar no longer had sufficiently high demand? As in, the government printed too much or currency, or everyone said, 'fsck this, U.S. dollars aren't worth nothin' in my book!' Again, it's not backed by another commodity. It used to be backed by gold, but is no longer. BTW, Linden dollars are also of similar 'limited supply', even if they're only virtual. (If you disagree with this, remember that there isn't enough U.S. currency on the planet to cover all of the outstanding U.S. dollars, because that money, too, is virtual!)

Re:Vast exaggeration

[DaleGlass]

Because 70% is a lot larger than 5%, of course.

Now, I think that Ginko is very likely to be a Ponzi scheme. Not necessarily intentionally though, I think they did try to invest that money to be able to provide that interest, but of course that sort of profit is awfully hard to make and we're seeing the result.

The thing about Ponzi schemes is that they work, for a while. The early investors DO get their interest. It's the later ones who get screwed. So if you're not terribly ethical, you could put money into something like that knowing you have a good chance of getting what they promise, so long you join early enough, and take your cash before the whole thing goes under.

Re:Vast exaggeration

[Control Group]

Um. Nope. The US dollar is worth something because it has a limited supply.

Only if the something in question has some objective value. I can print off a few hundred CGMUs (Control Group Monetary Units), making a very limited supply, but I don't imagine that would make them worth money to anyone else*.

Unlike the other commodities you mention, US dollars have no inherent utility. The "full faith and credit" of the US government determines their utility. Their scarcity determines their market value. You need both for a given good to be worth something.

*If I'm wrong about this, I invite you to invest in my CGMU-printing business.

Re:Vast exaggeration

[eln]

The second paragraph of my post says pretty much exactly that.

Re:Vast exaggeration

[karmatic]

Shouldn't this put millions more LDs out into the "economy" daily, effectively generating SL inflation on the order of Zimbabwe's?

If you look at their Stats Page, you will see a number of sinks they have to remove money from the system. These include classified ads, group creation fees, land, directory fees, upload charges, etc. because of this, they can pay some of those linden dollars back, without causing inflation in the process.

Re:Vast exaggeration

[cez]

You could substitue any nations currency in the world with "U.S. Dollar" and be correct about it no longer being truly backed by gold, and I suppose the rest of your point. On the other hand... the FED has stopped releasing Money Supply figures... hmmm go figure.

Re:Vast exaggeration

[UbuntuDupe]

That's not quite right. Legal tender laws don't say "You must accept dollars while operating in the US." They just say, "If you declare that you accept 'US dollars' as payment, you must accept *these* notes." That is, you can't agree to accept dollars, and then not accept dollars. If you specify a contract that references gold, the law doesn't change that -- after all, how would contracts regarding gold mines operate?

"You are contractually obligated to dig one ton of gold from this mine."
"Hahah! Invalid! I just have to give you US dollars!"

The reason most US prices are quoted in dollars is because that's what most people deal in. You can still require "tokens" for arcades, chips at gambling tables, Jack Cash at Jack-in-the-Box, etc.

Re:Vast exaggeration

[Control Group]

The GP was right for the question he was answering: why do the unbacked, limited-supply US dollars have value? Among other things, because you can pay taxes with them. I would add further, that so many debts are denominated in US dollars. This cascades into a sort of network effect: X people accept dollars, because they can pay debts with them, so MOST people accept dollars because they will be buying from someone, somehow connected to those X people.

All of which boils down to the starting point, the the US government mandates that debts within the US can be settled by exchange of US dollars. This causes the cascade which you - accurately - describe. Which is why the worldwide value of the dollar is so closely related to the strength/productivity of the US economy, since that determines exactly what debts are mandatorily satisfiable with US dollars.

An interesting question to ponder is what might happen if the US government removed the legal requirement of accepting US currency to settle US debts, even if the government itself continued to accept it and pay its debts with it. On the one hand, the dollar is so well-established as a currency that it's tempting to suspect that it would go right on, much as it currently does. On the other, there would have to be a follow-on effect to such a vote of no confidence from the government which theoretically backs the value of the currency.

Re:Vast exaggeration

[Colin Smith]

My snot has limited supply too, but it's not worth anything. Your snot is just one among billions. There's a plentiful supply. Dollars have a value because the supply is limited, if there was an infinite supply, nobody including the government would accept them as a form of payment for anything, including taxes. Try printing them off yourself and see what happens.

The reason a lot of economists like currency based this way is that you don't have to hold productive commodites (like gold, which can be used for hi-tech equipment) out of production, just so it can be used as money. It doesn't have to be debt though. Look I agree debts can be useful, but there's no particular reason that money has to be based on it, or even on gold. Money is a valuable commodity of it's own, really that's how people think of it anyway. The only problem with unbacked currency is the government's propensity to roll the presses 24 hours per day, seven days per week, 52 weeks of the year.

e.g. http://www.mises.org/fullstory.aspx?control=1595

but you're exaggerating its impact The fractional reserve system multiplies the impact, and... Really, take a look at the effect of exponentially increasing debt on the economy, society, on the environment. Look at who gets the cash and who gets the poverty.

As long as people know the approximate range by which it will expand the money supply, they will demand an interest rate on their lending that eliminates this effect. Fine if you're in a position to buy government bonds. For the rest of humanity though? The waitress waiting tables for minimum wage.

Re:Vast exaggeration

[Control Group]

You're right, I was (perhaps over-) simplifying. Obviously, both parties can agree beforehand to perform a transaction in some medium of exchange that isn't dollars. In cases where such is not stipulated ahead of time, however, dollars need to be accepted as payment. That is, dollars are the default form of payment: it isn't legal to provide a commodity and demand after the fact that you will only accept payment in gold.

Re:Vast exaggeration

[Anonymous Coward]

In regards to:
Now, s/Linden dollar/U.S. dollar/ and s/Second Life/U.S./ and the sentence would still be correct. Go ahead, try it. Read it again. Because the U.S. dollar has no commodity backing...

The US dollar is backed by the full faith and credit of the US government. Arguably more trustworthy than the owners of these virtual banks that we will refer to as "some dude"

Re:Vast exaggeration

[Dragonslicer]

Ginko also isn't a "bank" in the usual term of the word; it's not regulated or insured in any way and isn't impacted by any of the legal requirements of real world financial institutions. Quite frankly; you're an idiot if you trust them with your money. So they're the Second Life version of PayPal?

Re:Vast exaggeration

[sfjoe]

That's the whole reason US money is worth something, because the government guarantees they will accept it in payment of taxes.

Well, that's *A* reason but not "the whole reason". The US dollar is unique amongst currencies as it is close to being a global currency. It is accepted in nearly every country and some countries even use it as their own official currency rather than print their own. People accept it as having value because the know it will retain value in the future making it the world's foremost reserve currency.

Re:Vast exaggeration

[DerekLyons]

Keep in mind that regulations and insurance are relatively new concepts in real-life banking. (Yet people take them for granted.) Even so, regulation didn't prevent the S&L crisis.

Re:Vast exaggeration

[DerekLyons]

Now, s/Linden dollar/U.S. dollar/ and s/Second Life/U.S./ and the sentence would still be correct. Go ahead, try it. Read it again. Because the U.S. dollar has no commodity backing...

Ahh... Mindless US basing FTKW (For The Karma Whore).
 
Truth is you also go s/Linden dollar/99% of all RL currencies/ and s/Second Life/99% of all RL countries/, and still be correct.

Re:Vast exaggeration

[Anonymous Coward]

Control Group is a monkey brain!

Legal tender is NOTHING to do with transactions per se. I can demand that I am paid in anything. Quite often US transactions are conducted in Pounds Sterling, or Euros, particularly if there is some forex issue in the bargain.

What legal tender means is that the notes must be accepted in payment of a financial debt. Note the difference. If I ask you to climb a tree and say I will pay you for this with two tins of pineapples, a contract has taken place, and you will expect two tins of pineapples in return for this service. Not the dollar equivalent, or some Japanese yen, unless you re-negotiate. So I can say 'no cash accepted - credit cards only' when selling something quite legally. Before a transaction takes place, the ground rules are whatever both parties accept.

Now, debts here are usually valued in dollars. If I owe you $100, I might offer you a gold bracelet worth more, and you would be within your rights to refuse. I might offer you my daughter. You might accept. But if I offered you 100 greenbacks, you would not be within your rights to refuse. They are Legal Tender, and must be accepted.

And the idea that money is valuable because the government says it is ... Blockhead!!!

At the moment the Zimbabwean government is saying that the Zimbabwean dollar is worth 1/250 of a US dollar. Try getting that!

Value is what it's always been - a feature of a comodity which has utility and is scarce.

Re:Vast exaggeration

[SatanicPuppy]

Might as well put it in the lottery. If they're returning 100% interest, then someone is getting screwed somewhere.

Banks make money through investing in other people's projects, and by loaning money for interest. Like everything else, it's a diminishing return, so you can't loan money at an equal rate to the interest rate you're giving your depositors, so either they're loaning your money to people at an interest rate that is higher than 100%, with no possible way to collect on a bad debt.

Chances are they were using that money to finance one of the now-illegal casino's, which would make sense, as that's about the only way to make money in SL that would actually require an input of cash. Now that they've tanked there is basically no longer any point in a bank that actually pays interest. There is nowhere for the money to come from.

Re:Vast exaggeration

[2short]

"go look up 'fractional reserve banking' "

Assuming you have looked this up yourself, why do you persist in pretending the governments borrowing of money is anything like "printing" it?

Mind you, irresponsible borrowing of money is a really stupid idea. But it is an entirely different stupid idea than the government creating new money and spending it, assuming the currency system were set up in such a way that that were possible, which it is not.

Something being in limited supply does not make it valuable unless there is some demand for it. There is demand for US Dollars only because people will accept it as payment for debts.

Re:Vast exaggeration

[exi1ed0ne]

An interesting question to ponder is what might happen if the US government removed the legal requirement of accepting US currency to settle US debts, even if the government itself continued to accept it and pay its debts with it.

There is no requirement to accept USD, or anything else, as payment. If you were to contract with me for a service, there is no restriction on my accepting bunny rabbits or seashells in the exchange. Legal tender laws don't mean that someone has to use a particular currency to settle debt, just that a piece of paper with specific squiggles and colors on it is legally treated like it was a valuable good.

Re:Vast exaggeration

[Anonymous Coward]

Except for the facts that PayPal is regulated and has a banking license. So really, just like you say, except not.

Re:Vast exaggeration

[unreal32]

SL currently gives 300L per week only to subscribers (paying accounts) - that's about $1 U.S. Dollar a week. I'm too lazy to look up the figures, but this might only inject $20,000 per week in real money into the SL economy. But the thing is, you have to pay US$10 a month to get this $1 a week, so Linden Labs is still getting positive injection of cash from this weekly stipend. That's nowhere near the 7000L you claimed. Also, it doesn't matter how much money you have in your account, SL will give you this money every week. So there's no incentive to give your money to these "trusted" third parties except if you've got a lot of cash sitting in your SL account and would like to earn interest, like the real world.

Re:Vast exaggeration

[2short]

"Look I agree debts can be useful, but there's no particular reason that money has to be based on it"

If you can't use it to settle debts, it's not money.

"'As long as people know the approximate range by which it will expand the money supply, they will demand an interest rate on their lending that eliminates this effect.'

Fine if you're in a position to buy government bonds. For the rest of humanity though? The waitress waiting tables for minimum wage."

Yeah, life under the gold standard was a workers paradise.

Re:Vast exaggeration

[Belacgod]

I won't accept anyone else's snot but the GP's to pay my debts! Everyone else's snot is counterfeit!

Re:Vast exaggeration

[Control Group]

Control Group is a monkey brain!

Good start.

Legal tender is NOTHING to do with transactions per se. I can demand that I am paid in anything. Quite often US transactions are conducted in Pounds Sterling, or Euros, particularly if there is some forex issue in the bargain.

If you specify a different medium of exchange beforehand, yes. As I admitted in another post, I was being overly simplistic. You may not retroactively elect to not accept dollars as payment.

Now, debts here are usually valued in dollars. If I owe you $100, I might offer you a gold bracelet worth more, and you would be within your rights to refuse. I might offer you my daughter. You might accept. But if I offered you 100 greenbacks, you would not be within your rights to refuse. They are Legal Tender, and must be accepted.

What kind of distinction between "debt" and "debt" are you trying to draw? If you owe me $100 because I served you dinner at a restaurant, I may not suddenly demand payment in the form of your daughter's services. This is not in any real sense different than if you owe me $100 because I loaned you $75 at 33% interest. Either way, you owe me $100; what transaction incurred that debt is irrelevant - all that matters is that we did not agree beforehand on a different method of payment.

And the idea that money is valuable because the government says it is ... Blockhead!!!

At the moment the Zimbabwean government is saying that the Zimbabwean dollar is worth 1/250 of a US dollar. Try getting that!

Value is what it's always been - a feature of a comodity which has utility and is scarce.

What an interesting point you've made. Where, exactly, do you suppose the "utility" of the dollar comes from? Its caloric value? Its insulating properties? Its ideal shape for snorting coke? Oh, right, it has utility because the US government says it does.

And since you need utility and scarcity for a commodity to have value - as you so soberly indicate - the dollar has value because the US government says it does. The fact that you have conflated "has value" with "has a specific market value" in your head does not mean that's what I said or what I meant. The US government can't dictate a market value for the dollar any more than Zimbabwe can. It does not follow that, therefore, the value of the dollar is not based on the US government.

Oh, and - you're a stupid poopyhead garbageface.

Re:Vast exaggeration

[morgan_greywolf]

You could substitue any nations currency in the world with "U.S. Dollar" and be correct about it no longer being truly backed by gold, and I suppose the rest of your point. On the other hand... the FED has stopped releasing Money Supply figures... hmmm go figure.

And they've been holding interest rates steady, despite the obvious need to lower them to juice up the economy.

Pay attention, people! I believe that the U.S. economy is currently collapsing under its own weight. This collapse should be completed within the next 4 years. This is going to make the Great Depression look like a temporary market correction.

Re:Vast exaggeration

[Anonymous Coward]

You're wrong. Yes, the fact that USD are "legal tender" does not force you to accept them as payment. But if some asshole smashed your car, if you took the schmuck to court he would ONLY be legally required to pay you the value of your car in USD. Because USD are ... legal tender.

Re:Vast exaggeration

[OldeTimeGeek]

How can it be anything other than a Ponzi scheme? Banks pay interest to depositors from the income that they make from loans and from other investments that they make.

Unless Ginko loans money along with taking it in as deposit or has some kind of other income from some SL secondary monetary market or makes money from real world investments, the only means that they have of generating the money to pay in interest is from income that they gain from newer depositors.

Re:Vast exaggeration

[Anonymous Coward]

Oh. This is what the EURO is now.

Re:Vast exaggeration

[coaxial]

It is not legal to require payment in pounds sterling, gold bars, or years of indentured servitude Well actually, indentured servitude is illegal under the 13th amendment.

Re:Vast exaggeration

[Anonymous Coward]

Paypal is not a bank. They recently obtained a banking license in the EU. In the US, they operate under wire transfer regulations. So it's really just like you say except not.

https://www.paypal.com/cgi-bin/webscr?cmd=p/ir/lic enses-outside

Re:Vast exaggeration

[Skim123]

Only if the something in question has some objective value. I can print off a few hundred CGMUs (Control Group Monetary Units), making a very limited supply, but I don't imagine that would make them worth money to anyone else*.

Unlike the other commodities you mention, US dollars have no inherent utility. The "full faith and credit" of the US government determines their utility.

While the "full faith and credit" of the US government might be the motivating cause for why people place value in the dollar, it's only that belief that makes the dollar worth anything. What I'm trying to say is that currency of any kind has no inherent value. It's value comes because for whatever reason enough people artificially give it value.

I've often wondered how a society goes about finding some currency valuable, how everyone agrees upon it. I imagine you'd need som catalyst, i.e., enough members of society agreeing to place value in the currency in question so that others might join in, figuring it's an easier way to do trade. And once you get a critical mass, I'm sure adoption skies to 100%. But what would the opposite valuation look like? How many people in a society need to start saying, "I'm not accepting that currency" before it gains enough steam that others agree, and then others, and so on?

Re:Vast exaggeration

[morgan_greywolf]

If you have faith in the U.S. government, it's certainly misplaced.

Re:Vast exaggeration

[petermgreen]

it's only that belief that makes the dollar worth anything.
if you want to operate in the US without the government trying to shut you down you have to pay taxes to the government. Those taxes must be paid in US dollars.

at least in the uk paper money started as something that was gauranteed by the issuer to be exchangable for a fixed ammount of something else (generally precious metals). Then because of problems with currupt issuers the government took over and then from there the exchangability to gold was phased out.

Re:Vast exaggeration

[Skim123]

at least in the uk paper money started as something that was gauranteed by the issuer to be exchangable for a fixed ammount of something else (generally precious metals). Then because of problems with currupt issuers the government took over and then from there the exchangeability to gold was phased out.

Yes, I am aware that currency was, in the past, backed by something tangible. But I wonder if it was as easy to exchange currency for that tangible good. Could you walk into a bank or the institution and say, "Here's three bucks, I'd like 0.2 ounces of gold (or silver or whatever)? Maybe for large amounts of currency, but what good does that do the average commoner?

Furthermore, what makes precious metals valuable other than society just agreeing that they are valuable (like any arbitrary currency)? I know that some metals have industrial applications, but gold and other shiny objects had worth even in pre-industrial times. It's funny what we decide to assign worth to.

Re:Vast exaggeration

[The One and Only]

SL prostitution also needs cash input, but it probably isn't nearly as lucrative.

Re:Vast exaggeration

[SatanicPuppy]

How so? Can't you just walk out in the street and start peddling your...ha...wares? I don't know anything about it really. Do you have to buy a "ho license" or something?

The only reason you have to have money to start a casino is because if people don't win, they won't play, and while the odds guarantee you'll make a profit eventually, you still may have to do some significant payouts early on.

Re:Vast exaggeration

[Bluesman]

"Dollars have a value because the supply is limited."

The supply of Confederate dollars is much more limited, but they are essentially worthless.

The only thing that gives anything value is what someone else is willing to do in exchange for it. People accept dollars in exchange for other things in many places, so it has value as a currency. Why do they do that? Only because everybody else does.

Let's go to the desert island model that's always so helpful. Two people on a desert island, one has water, the other has dollars. What's the inherent value of a dollar there? Nothing. There's no way the guy with the water is going to give it up unwillingly in exchange for dollars.

Now the guy with the water sees a rescue ship on the horizon, and offers the water for $100,000. Why? Because his perceived value of the dollar just went up, because he knows he will be going back to a place where everyone else accepts the dollar.

It seems odd that the value of currency is based completely on emotional things like "willingness," but really that's the way it works.

Re:Vast exaggeration

[Bluesman]

Finally, before the trolls come out, by "value" I'm not talking about artistic value, love, sentimental value, the value of a human life, etc.

Re:Vast exaggeration

[khallow]

The problem with this is that they should be paying you to store their money. After all, you don't get the recharge, your customer does. So why are you paying for a service you provide? This isn't the SL bank model.

Re:Vast exaggeration

[UbuntuDupe]

Very true, very true. I was only trying to show how a 100% LD annual rate of return should not surprise anyone. And I didn't charge anything or pay any interest for use of my bank. Eventually, I would have started charging, but I had to establish trust first. I only got maybe five customers before I quit.

Re:Vast exaggeration

[The One and Only]

Haha, no. The stock avatar isn't nearly sexy enough, and you need sexy clothes, sexy skins, sexy hair, sexy faux-genitalia, toys, someplace to do it, animations. A lot of stuff, all of which costs money. Most of the money in SL prostitution are in selling to prostitutes.

Re:Vast exaggeration

[CronoCloud]

In the past, the stipend used to be determined in part by ones rating numbers and how much L$ you had,. Higher ratings, more L$ in the stipend, less cash on hand, more L$ in the stipend. So people would game it by high rating people for money and transferring funds to "banks" That's probably the period in which the grandparent poster had their "bank"
.

Re:Vast exaggeration

[Arterion]

...then someone is getting screwed somewhere.

That's pretty much how any economy works. It's just usually so obfuscated that you have to look really hard to see it, and there are convenient excuses to dismiss it. That way the people on top don't have to feel bad about it.

Re:Vast exaggeration

[Snaller]

" The larger reason is that it's illegal in general to demand payment in some other form of currency in preference to the US dollar. That's what the phrase "this note is legal tender for all debts, public and private" means. It means that, if you're going to do business in the US, and if you're going to engage in a financial transaction, you may not refuse the US dollar as a currency to complete the transaction."

If that is what it means they should rewrite it so it actually says that.

But that may explain why american companies force the world to buy their products in dollars or drop dead.

Re:Vast exaggeration

[UbuntuDupe]

Modded to five? Oh, geez, people...

Dollars have a value because the supply is limited Yes, I know. My point is, while you technically answered his question, you weren't answering the part he was curious about, i.e., what *functional purpose* drives the value of money. It's like answering "Why rob banks?" with "because that's where the money is."

Look I agree debts can be useful, but there's no particular reason that money has to be based on it, or even on gold. I gave you the reason -- because if you use a commodity as money, a certain amount of that commodity must be held out of use, so it can be used as money. This carries an opportunity cost -- that commodity can't be used in production. With a "debt-based currency", people simply have the debts they'd have anyway, but no commodities have to be held out of use.

The only problem with unbacked currency is the government's propensity to roll the presses 24 hours per day, seven days per week, 52 weeks of the year. ...
The fractional reserve system multiplies the impact, Are you even reading my posts? Yes, the government inflates the currency. No, that's not a big deal now because all economic decisions already accurately factor this in! Does it hurt you if you're a saver? No, because interest rates cover the inflation. Does it hurt you if you're the poor, beleagured waitress? No. If money degrades, but your skills are as valuable, your wage will go up in nominal terms. If the employer doesn't raise her wage (it's mostly from tips that rise with inflating menu prices, but whatever), another would be glad to poach her. If no employer wants to raise her wages with inflation, yes, that sucks for her. I don't want to trivialize that. But what did the Fed have to do with that? The only way they can avoid raising her wage with inflation is if they value her labor less in real terms -- I don't see how you can pin that on the Fed.

Re:Vast exaggeration

[mwvdlee]

Paypal isn't a bank. They earn money by taking a specific amount from every transfer that goes through their service but they don't actually invest anything or have any of the associated risks of doing so. As such they don't NEED a banking license. If you look at the link you gave, you'll notice all these licenses are for money transfers, which is a pretty accurate description of what they do.

Re:Vast exaggeration

[Anonymous Coward]

The dollar is fractionally backed with BONDS. These represent government debt, worth their full value at maturity. The bonds in turn are paid for by taxes. Therefore, our money has value because the government will be able to pay back the bonds that it is fractionally backed by - with taxes.

Re:Vast exaggeration

[Warbothong]

Basically you're describing legal tender (if someone attempts to pay any debt in legal tender then they cannot be sued). The problem (unless you're a banker) with legal tender is that it makes the bank's debt (the "I promise to pay the bearer on demand the sum of " bit on bank notes) payable in legal tender, ie. a bank note is only worth another bank note. This makes attempts at establishing alternative currencies (usually backed by something) very difficult, since legally the stuff backing it can be interchanged with the current legal tender, thus destroying the point of the backed system. For example if I had a 10 NewDollar note, and each NewDollar is backed by X amount of gold, then if I try and get at the gold (the only safeguard I have in using this new, not widely accepted currency) I can legally be given the current market value's worth of dollars (or whatever the legal tender is, in my case pound sterling) and can't do anything about that. This means that new currency systems for those who are against the current one are actually backed by the current one (although there may be a slight buffer against massive, sudden changes like market crashes, but after such events how many people would be buying such things as gold, thus what would the value be? Relatively low I suspect).

Re:Vast exaggeration

[Anonymous Coward]

For reference, this situation no longer occurs, and hasn't since at least the middle of 2006 when I started playing. Paid accounts currently get a fixed weekly sum regardless of how much cash they have in their accounts, and free accounts get nothing.

Re:Vast exaggeration

[UbuntuDupe]

From what I know, legal tender laws don't ban alternate currencies. If you establish contracts and exchanges denominated in your personally-issued "new-dollar notes", they must be honored in those terms. When you think about it, all kinds of currency-ready notes are issued, and you could conceivably use those. Pokemon cards, for example. Does anyone worry that Nintendo will overprint them? Nope.

And even if what you're saying is true, I don't see the problem. If they "only" have to pay you the legal-tender market value of the new-dollar debt, then ... er ... take that legal tender and BUY the new-dollar notes! I mean, if they really did give you the equivalent...

The real reason alternate currencies don't spring up is that it's so damn hard to overcome the network effects of existing currency, as well as trust.

Re:Vast exaggeration

[Breakfast Pants]

As I admitted in another post, I was being overly simplistic. You weren't being 'overly simplistic,' you were being 'utterly wrong, and dangerously misleading.'

Re:Vast exaggeration

[Mal-2]

I won't accept anyone else's snot but the GP's to pay my debts! Everyone else's snot is counterfeit!

You only say that because it snot yours!

Mal-2

Re:Vast exaggeration

[EtherMonkey]

Actually, PayPal does offer a MoneyMarket account that is currently paying ~5% returns.

Re:Vast exaggeration

[Belacgod]

Ahh, booger off!

Re:Vast exaggeration

[EtherMonkey]

My snot has limited supply too, but it's not worth anything.

Everyone has snot. So supply is not limited unless your snot has special properties that makes it more desirable than everyone else's snot.

Even if your snot was unique, and one can argue that from a DNA perspective, this might be true. There also must be demand. Without any demand, no matter how limited the supply, your snot has no particular value.

But if your snot had some unique and desirable quantity that caused a demand, then your snot would indeed have value. And if demand was sufficient to exceed your supply, then the value would increase until an equilibrium was reached between cost and perceived/actual benefit.

So I suggest you start experimenting with your snot to find it's unique and marketable properties. If nothing else, it gives you an excuse for picking your nose.

Re:Vast exaggeration

[Warbothong]

The point behind legal tender is that it can be used to pay off any debt. If some people started using Pokemon cards as money then nobody has to accept Pokemon cards in exchange for anything because they are not legal tender (I wouldn't give someone a car in exchange for Pokemon cards for example, but even if I only decided to accept gold in exchange for a car I would also have to accept legal tender since I can't legally force people to pay me, I have to go through the courts to do that and if someone offers to pay in legal tender then the court will consider the debt payed). So nobody has to accept Pokemon cards but everyone has to accept legal tender, it's the law. It is also illegal to demand Pokemon cards from anyone instead of legal tender. If you go to work for an employer who promised to pay you in Pokemon cards then that employer can instead pay you in legal tender, because the law says that you have to accept it.

Since Pokemon cards have no value anyway then such an attempt at establishing a new currency would fail, not because it is illegal but because nobody would have faith in it and would go back to using legal tender for everything, even things 'supposed' to be payed for with Pokemon cards. A backed currency would fare better (there are a few), since the currency actually has a value, but my argument is that the only people who would actively use such a currency would do so because they want to stop using the current (legal tender) currency, but since every debt is legally payable in legal tender, including the debt backing new currencies ('This is worth 1 pound of gold' is a debt, which can legally be payed with legal tender instead of gold) then using such a currency would not help anyone to get away from the current, unbacked currency. (I could make my own currency right now backed by gold, even though I don't have any gold, since I can use an equivalent amount of pound sterling instead. Since sterling can be printed and printed without anything to back it up (the only limit is the common sense of the regulators) thus my new 'gold backed' currency can also be printed and printed, backed by sterling which is backed by nothing (other than debt). If anyone demands the gold from me I can pay them in pound sterling and there is nothing they can do to stop it.)

Re:Vast exaggeration

[turing_m]

"The US dollar is unique amongst currencies as it is close to being a global currency."

Yes, this is worthy of discussion. Other governments are always more skeptical than J Random Citizen. And Russia doesn't care much if it can pay US taxes. Thus, a global (paper or digital) currency will be backed by either gold or whatever is the most critical commodity of the day. Gold, for a confluence of reasons (divisible, fungible, rare, unique color, nearly impossible to destroy, impossible to counterfeit economically, easy to test) makes a good world currency.

The US dollar is no longer backed by gold, but it is backed by oil. Even though the US dollar has been massively inflated over the years, so long as the world's oil changes hands at the supply for US dollars, the US dollars have value.

In a particular country, if you don't pay tax, you go to jail. In (most of) the world at large, if you don't buy crude oil, your economy stops functioning.

Re:Vast exaggeration

[vtcodger]

***Ginko also isn't a "bank" in the usual term of the word; it's not regulated or insured in any way and isn't impacted by any of the legal requirements of real world financial institutions. Quite frankly; you're an idiot if you trust them with your money.***

Oh, I see. It's kind of like PayPal then?

Re:Vast exaggeration

[Eivind]

Without any actual income, they have no way of paying out more than they get in. Which makes it precisely equivalent to the lottery. Sure, one can get lucky and get richer by playing the lottery, however the sum total of all lottery-players certainly get poorer.

Invest in something that *has* value and/or generates income instead. Stock is fine. If you want higher risk and higher pay-out, use gearing. It's easy to gear so that your pay-out is 3 times what the stock-market pays. This increases your risk proportionally though.... (actually sligthly more than that because of overhead, fees etc)

Re:Vast exaggeration

[Eivind]

You don't though, need much starting-capital for a virtual casino. It doesn't take terribly many gamblings to virtually guarantee that you're in the black, and after that your capital grows exponentially, aslong as you can attract enough players.

It makes no sense at all, since $10 out of your own cash would be plenty to get people interested, you may be unlucky and lose it on the first rounds, but more likely (since the math is always on the casion-owners side) you'll end up with $20 after a few spins. At which point you can increase prices and max-bets and proceed from there.

Re:Vast exaggeration

[Eivind]

I don't see why you need "significant" money early on.

Start with $10, offer anyone to bet $1, toss a die, and get $5 back if they get a 6. Odds that you'll ever go broke by this method is aproximately 5%, and if it happens, it'll happen early (in the first 5 tries). If you've got $20 in starting-capital, odds that you'll ever go broke are less than 1%.

And 5 payout with 1/6 chance is actually a better gambling-deal than many (most?) typical gambling-offers.

Re:Vast exaggeration

[Eivind]

Limited supply isn't enough. Lots of stuff have limited supply, but are nevertheless worth zilch.

US dollars are worth something to you because others will probably be willing to make exchanges against it later. In other words, if you accept $10 from me now, you will probably be able to exchange that for something that *has* actual use to you lateron.

You're rigth about supply and demand, but demand for something is always for a *reason*. People demand oil because, ultimately, they want to drive their cars, or have their houses heated. Dollars don't have any such practical use. The only reason for demanding dollars is because you want to exchange them for something that *has* practical use at some later point.

You see this clearly when a currency goes into hyper-inflation: People stop demanding it, for the perfectly simple reason that they no longer think they'll be able to exchange the money for something with actual use lateron.

Oil, Bread, Beer, Clothes or Cars never go into HyperInflation -- they have an intrinsic use, so there's a lower bound for their value. That ain't so for money. There is no fundamental reason the dollar cannot fall to 1/10th 1/100th or 1/1000000th its current value.

Re:Vast exaggeration

[Eivind]

No. That isn't true. Well, it is true that lots of people get screwed in any economy. But it is *not* true that any economy is a zero-sum-game where value is only moved around but not generated.

If I borrow $1000 from you, and use that for buying raw-materials, I may be able to, using my own two hands, create some product which may then be sold for $1200. I can then pay you $1100 back, and keep $100 of profit myself. Nobody was "screwed" in this transaction.

Sure, you can argue that the $200 was the result of my work, and I was thus screwed by getting to keep only $100 of it. But the thing is, your $1000 has to come from somewhere too -- likely the direct or indirect result of *your* work. So in reality, I borrow some of your work, and in the process increase the value of it.

That is why *investing* is fundamentally useful, and contributes to GENERATING wealth, while *speculating* as in day-trading is fundamentally stupid and non-productive. One day-trader is only able to get exactly as much richer as someone else gets poorer. A zero-sum game. People day-trade anyway, because 75% of all people are convinced they're smarter than average. In my experience, 95% of all day-traders are convinced they are smarter than the average trader/investor. Which obviously ain't true, but that doesn't seem to be stopping them.

Re:Vast exaggeration

[HUADPE]

There is no requirement to accept USD, or anything else, as payment.

No. Pull out a $1 bill. It says "This note is legal tender for all debts, public and private." This means that if you're accepting payment for something in the United States, one of the means of payment MUST be US dollars.

You can accept bunny rabbits as payment, but you must accept US dollars, and that's why US dollars are valuable.

Re:Vast exaggeration

[exi1ed0ne]

No. Pull out a $1 bill. It says "This note is legal tender for all debts, public and private." This means that if you're accepting payment for something in the United States, one of the means of payment MUST be US dollars.

Go to McDonalds and use a $1000 bill to pay for your meal. That's a legal tender note, but I'd wager they won't take it. Call the Feds!!

The reality is that nowhere is it law (in the US) that someone must accept USD. You obviously harbor some unfortunately common misconceptions about money, currency, negotiable instruments, etc. and how they are actually codified in the law. Since this is /. I'll give you the Wikipedia reference[1]. I'd recommend spending some time with the US Code on this issue though. Yes, it is that important to understand how money actually works.

INAL, but I do know how to read. USD are valuable exactly because they are needed to pay taxes and that it is relatively easy (at the moment) to convert them into other goods.

[1] http://en.wikipedia.org/wiki/Legal_tender#In_the_U nited_States

Re:Vast exaggeration

[Anonymous Coward]

There is also currency trading. Take L$1,000,000 and place a limit sell order at a rate of L$265/US$1 and it will clear in a couple of days to a week. Use the proceeds (about US$3,641 after fees) and place a limit buy order at a rate of L$277/US$1 and it will clear in a couple of days to a week, for $1,008,615 after fees. Lather, rinse, repeat. That's about 20% per year, which isn't bad. Of course, if you do this, be aware that at any moment, Linden Labs could go belly up and you will have nothing, or they could have some glitch and your virtual money could simply go poof and you will have no recourse. Cheers!

Re:Vast exaggeration

[exi1ed0ne]

But if some asshole smashed your car, if you took the schmuck to court he would ONLY be legally required to pay you the value of your car in USD.

Actually they would be required to do whatever the judge told them to do. The fact that they monetize damages in USD almost 100% of the time is irrelevant. USD isn't the only damages the court awards - think foreclosure.

Re:Vast exaggeration

[Arterion]

No, you didn't "generate" money, in your example. You took the $200 you made from someone third party who bought your product. So value was only moved around. No new money came into existence. I think wealth is more like a long balloon. If you want one side of it to be fat and full, you have to squeeze the other end of it. And that's exactly what happens.

Re:Vast exaggeration

[Jon Abbott]

I saw the mises.org link in your post, and wanted to mention that Ron Paul endorses von Mises and the Austrian school and has even written a small book on the subject.

Re:Vast exaggeration

[Eivind]

This is, quite simply, not true. If wealth could not be generated, then humanity would, by nessecity, be as poor today as we ever where, which clearly fails the laugh-test.

The buyer bougth the product at his own free will for $1200. He would only do that if the product, to him, was more valuable than the money. Indeed he *benefited* from the transaction. If he didn't, he wouldn't have entered into it afterall.

Notice that *wealth* is not the same thing as *money*. New *money* obviously comes into existence whenever the issuer decides to start printing some more. That doesn't make society any richer though, the pieces of paper have no value in themselves.

But when I, using my own two hands, for example convert a tree to a chair, and sell the chair for more than the tree cost, then I created actual wealth, actual value.

Re:Vast exaggeration

[Arterion]

You haven't "created" any wealth. It's simply been redistributed from someone else to you. When they give you $200, they have $200 less. You have $200 more. It's an even transaction. You didn't do something that turned $200 into $300. You just reallocated an existing $200 from someone else's pocket to your own. Maybe I'm missing something here?

Re:Vast exaggeration

[Eivind]

You're missing that allthough they've got $200 less, they've got something else instead (my product) that they personally value HIGHER than that. Otherwise they wouldn't have bougth it.

Yes, they could have made the product themselves. But here's the thing: It's perfectly possible that I am capable of making the product in say one work-day, while they'd have needed 3, or been unable to alltogether. In that case they are *better* off buying the product from me, and in return perhaps sell *me* some product which *they* are capable of creating faster/cheaper/better than me.

People are different. They have different resources (land, raw-materials, skills, education, physical characteristics, psychological characteristics), thus *everyone* gets richer from letting people do what they're good at, and exchange the result for products they're *not* good at making.

I'm good at programming. I'm terrible at car-repairs. If I make a small program for a good mechanic, and he fixes my car in the meantime, we're *BOTH* better off than we would be if we didn't trade. (the result is a better program, and a more well-repaired car than would otherwise be the case)

Money means the trade can be indirect, rather than direct, but the overall win remains.

If every human had *exactly* the same skills, and exactly the same raw-materials and so on, then sure, trade would make no sense and generate no wealth: you could just aswell do everything by yourself.

Re:Vast exaggeration

[Arterion]

All that may be true, but it doesn't generate any new wealth. For everyone dollar you have, it's a dollar someone else doesn't have, and I'm not just referring to paper money. Everyone can't get just richer and richer. That would just lead to inflation, where the money might shift, but there still wouldn't be any "more" of it relatively. There's a definite balance to the economy, and for some people to get richer, other people have to get poorer.

Re:Vast exaggeration

[Eivind]

You seem to confuse wealth with money. Obviously, aslong as the US Central Bank doesn't print new dollars, the total amount of dollars stay constant.

Inflation is if the useful stuff you can get for a certain amount of cash gets less and less. It's not inflation if in year X everyone has 1 dollar, which can be used for buying one bread (for example) and then some year later, productivity has increased to double, so everyone now has 2 dollars, each of which can still pay for one bread.

In practice we have, and *wish* to have, sligth inflation, in the 1-5%/year range. That has numerous benefits, perhaps you're aware of them, if not, tough luck, I don't feel like playing the teacher :-)

Fact is, the average American (or Norwegian, or indeed *human*) is a lot *wealthier* today than he was a generation ago. He also has a larger supply of *cash*, but the two are unrelated: it's perfectly possible to have more cash, but be poorer if there's been inflation, or the other way around: to have the same amount of cash and be richer, if there's been deflation.

Re:Vast exaggeration

[m50d]

You may not retroactively elect to not accept dollars as payment.

Are you allowed to do that with any other currency or means of payment?

Re:Vast exaggeration

[UbuntuDupe]

Don't know if you're still following this, but...

Yes, you're right. Legal tender laws are kind of meaningless at this point, for the reason you just cited. After all, it's just as illegal to offer to redeem someone's apples for oranges 1:1, and then refuse to accept apples.

So what's the purpose then? Well, when they were originally passed, the US government was changing the definition of what consituted a "dollar" and therefore, what was a valid means of satisfying contracts. This had the effect of expropriation (someone expecting a note redeemable for a gold got a note redeemable for nothing except what the market might bear) and that respect, I agree it was an injustice.

But now, the dollar has such high liquidity and stability that most people operate in it anyway. Plus, they know what's going on from the beginning, so if they're not comfortable accepting dollars, they can simply arrange contracts that way in advance. Any injustices due to legal tender laws have already happened and people today can easily work around them.

Soon to be followed by armed robberies

[SleptThroughClass]

"I know you're carrying cash, so hand over that mattress and nobody gets hurt."

Look out! It's a Self-Fulfilling Prophecy!

[apodyopsis]

How to create a Self-Fulfilling Prophecy? Simple, just tell everybody that the 2L banking system is about to self destruct horribly.

It's like a housing price crash you only need to send the correct message to make the stampede to avoid and the very thing you have been warning about comes into being because of the original message. Hell, I explained it badly, Wiki does it better...

http://en.wikipedia.org/wiki/Self-fulfilling_proph ecy

People are idiots

[eln]

If this sort of thing affects your finances in any major way, you're a moron for "investing" your money in a game. Just because Linden Labs decided to publish an exchange rate for their dollars and real dollars doesn't mean their dollars are a good investment vehicle. Their economy is completely unregulated, and their "banks" are run by anonymous people in foreign countries well outside the reach of US laws (the guy they interviewed is in Brazil, for example).

You might as well call playing the slots in Vegas a retirement plan, it's probably less risky.

Re:People are idiots

[Silver Sloth]

You might as well call playing the slots in Vegas a retirement plan, it's probably less risky. Definitely less risky. In Vegas you know exactly what the odds are, they may be against you, but they're known. I would say that a better analogy is investing in rich Nigerians who want to get their funds to the west.

Re:People are idiots

[dave1791]

Hey, I have lot's of experience investing with rich Nigerians; westerners stuck in Nigeria and in need of cash as well. When my investments come around, I'm going to be a rich man.

Re:People are idiots

[Anonymous Coward]

Their economy is completely unregulated

But but but. Regulation is a BAAAAAAAD thing! Vote for Ron Paul and he'll get rid of things like pesky regulations for banks.

Re:People are idiots

[esampson]

..Just because Linden Labs decided to publish an exchange rate for their dollars and real dollars doesn't mean their dollars are a good investment vehicle...

Just to pick nits but LindenLabs doesn't really publish an exchange rate, at least not in the sense that you would seem to imply. What LL really does is act as a middle man between two players exchanging LindenDollars for US Dollars. The person selling the LindenDollars sets the sell rate at whatever they wish and their money goes into a big pool with a tag for that exchange amount. When another player wishes to purchase LindenDollars they set the buy rate at whatever the maximum is that they are willing to pay and if there is anything in the pool at that sell value or less it is purchased at the sell value originally tagged. LL makes a little bit of money from the deal as a brokerage fee.

The exchange rates published by LL are the low, high, and average exchanges of the day so the values aren't set at all by LL. Now technically, yes, you are correct when you say LL publishes an exchange rate but the implication in that statement seems to me to be that they set that exchange rate. In this they no more set the exchange rate than, say, the Wall Street Journal when it publishes the exchange rate of the US dollar against the Yen. The value isn't really arbitrarily set but is set by the faith people hold in the currency.

None of which is to really say that people investing large amounts of money into LindenDollars aren't being foolish. It seems to be a very high risk investment. Just that there is a bit more backing up the value of the LindenDollar than a company saying 'this is it'.

Another scam?

[jandrese]

The article is lighter on details than it should be for an article that spans two pages, but it looks to me like someone set up yet another "bank", promising high returns (and actually delivering for awhile), that was actually just a pyramid scheme. Once the pyramid gets big enough the creator always grabs the money and runs, and people cry and write articles about it.

Really people, there is no reason to invest in these "banks" in SecondLife (or any other game). Your money is safe in your own account. It's not like it's any safer in one of these "banks", in fact the opposite is true since you're forced to trust a random guy on the internet who has absolutely no laws or regulations backing him up.

The ban on gambling shouldn't have made too much difference. Everybody knows that every form of gambling in SL was fixed anyway. I don't know anybody who actually used them.

Re:Another scam?

[SleptThroughClass]

Or was this bank also making investments and issuing loans so it was getting income with which to pay the interest?

Re:Another scam?

[jandrese]

No SL "bank" issues loans. There is no way to secure it--and frankly it's not needed, a few real dollars gets you enough SL dollars to buy just about anything for sale in the game short of some massive chunks of land (up to an entire server).

Also, how is the bank's creator supposed to grab the money and run if he's managing loans? That defeats the whole purpose of these banks.

Re:Another scam?

[ironfrost]

Investments that let him pay out interest of 70% per annum? Doesn't sound particularly likely to me.

Re:Another scam?

[AVee]

"The article is lighter on details than it should be for an article that spans two pages, but it looks to me like someone set up yet another "bank", promising high returns (and actually delivering for awhile), that was actually just a pyramid scheme. Once the pyramid gets big enough the creator always grabs the money and runs, and people cry and write articles about it."

Al very true, but in the end it might just be the game which is a pyramid scheme, not just the bank inside the game. If Lindon were to pull the plug out of the game right now, where would you go to exchange your Lindon Dollars for real ones?

Re:Another scam?

[jandrese]

Why would you sit on your Lindon Dollars at all? Once I get more than a few real dollars worth of Lindon Dollars I always send them straight out to the market. There is really no reason to sit on Lindon Dollars.

you have to admire second life

[Anonymous Coward]

for creating the worlds largest gaming pyramid scheme

One of two things

[bytesex]

Either someone expects virtual money to be created on the fly for them, or they're just cashing in and never expect to return a cent.

What Do You Expect

[mfh]

Video Games are designed to be fun and typically fantasy based. People will give away money to the makers of video games for hours of enjoyment.

The reality is that anyone who lost money on this is getting what they paid for.

Re:What Do You Expect

[DaleGlass]

Well, SL really isn't much of a game. You can implement games inside it, but it's not a game itself.

And while some people do have lots of fun there, others do business. Business is quite possibly to do successfully in SL, but just like in reality they go bankrupt as well when things don't go as planned.

Re:What Do You Expect

[hax0r_this]

Don't you mean paying for what they got?

tho?

[CompMD]

Every time you use "tho" in place of the actual word "though," God kills a kitten.

Re:tho?

[nofrak]

Ain't nothin' quite as sad as watchin' your heroes die - except for watching your language die.

Re:tho?

[Anonymous Coward]

Tho I agree with your comment, I don't like kittens.

Re:tho?

[jdigriz]

So instead of spaying and neutering, all we need to do to keep the pet population down is mangle the Queens's English? Cool! What piece of netspeak annihilates puppies?

Re:tho?

[enharmonix]

What piece of netspeak annihilates puppies?

Actually, it's the word "netspeak," you puppy killer!

(Yes, I'm aware I used the word twice just now, but I'm pretty sure it doesn't count when you quote it.)

:p

Re:tho?

[Anonymous Coward]

"What piece of netspeak annihilates puppies?"

Apostrophe's in the wrong place's.

Oops, two more dead puppies.

Re:tho?

[vigmeister]

God's crawlers don't recognize /. tags. They don't honour 'robots.txt' either.

Cheers!

Re:tho?

[gangien]

Mr. Taco hath killed many a kittens.

Re:tho?

[Belacgod]

You mean two more dead puppy's.

Slow news day in the real world...

[QuietLagoon]

So we have to read articles about news in a fake world?

Re:Slow news day in the real world...

[ischorr]

No, because no one forced you to read the article.

Re:Slow news day in the real world...

[QuietLagoon]

It was an article referred to by a /. posting. Doesn't everyone read those articles?

Fiction meets fact

[nojayuk]

"Halting State" by Charlie Stross is out in October. It starts with a bank-raid in an MMORPG by a bunch of orcs with a dragon for fire-support and then gets weird.

Re:Fiction meets fact

[andphi]

So, Reservoir Orcs?

Re:Fiction meets fact

[Anonymous Coward]

The problem is all the orcs want to be Sir Black...

Re:Fiction meets fact

[Anonymous Coward]

No, they want to be Sir Red, because Red goes faster.

Obl. Quote

[Rixel]

You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's imaginary house...right next to yours. And in the imaginary Kennedy house, and Mrs. Macklin's imaginary house, and a hundred other imaginary houses. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?...Now wait...now listen...now listen to me. I beg of you not to do this thing. If Potter gets hold of this Virtual Building and Loan there'll never be another decent imaginary house built in this imaginary town. He's already got charge of the imaginary bank. He's got the imaginary bus line. He's got the imaginary department stores. And now he's after us. Why? Well, it's very simple. Because we're cutting in on his business, that's why. And because he wants to keep you living in his imaginary slums and paying the kind of rent he decides. Joe, you lived in one of his imaginary houses, didn't you? Well, have you forgotten? Have you forgotten what he charged you for that imaginary broken-down shack? Here, Ed. You know, you remember last year when things weren't going so well, and you couldn't make your payments. You didn't lose your imaginary house, did you? Do you think Potter would have let you keep it? Can't you understand what's happening here? Don't you see what's happening? Potter isn't selling. Potter's buying! And why? Because we're panicky and he's not. That's why. He's picking up some bargains. Now, we can get through this thing all right. We've got to stick together, though. We've got to have faith in each other.

Re:Obl. Quote

[joshv]

Brilliant. Whoever rated this "Offtopic" is a blithering idiot.

Re:Obl. Quote

[shrubya]

Do you think Potter would have let you keep it?

Oh, come on, that's just plain rude. Deathly Hallows has only been out for a couple weeks now. Quoting entire paragraphs from it without a SPOILER warning goes way beyond the bounds of public decency.

Remember, every time a spoiler sings, an angel gets its feathers plucked out.

Re:Obl. Quote

[SoCalEd]

My God I wish I had mod points. Freakin brilliant post. Kudos, Rixel.

Re:Obl. Quote

[dwye]

Not a quote, though, a parody. Not everybody suffers through "A Wonderful Life" every year, also, so this might be a little obscure to some (lucky bastards).

Re:Obl. Quote

[Anonymous Coward]

I think that was "A Wonderful Life" quotation, during a bank run cleverly plotted by "Mr. Potter", not Harry Potter. ;)

Whats the big deal

[Tyrsenus]

That $12K is only worth US$45. If that's the cause of problems, I'd take my money out too!

Re:Whats the big deal

[Kiffer]

No... that $12k is worth L$3.2 million...
You're converting an extra time.

http://secondlife.reuters.com/stories/2007/07/25/w orld-stock-exchange-hit-by-l32-million-theft/

It's a wonderful life.

[Paranoia Agent]

You're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's S & M fetish dungeon...right next to yours. And in the Kennedy's warehouse of flying penises, and Mrs. Macklin's Fur-suit emporium, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

Re:It's a wonderful life.

[JMZero]

HH

Sm Wnrit

Personally

[Elsapotk421]

I'm kinda sick and tired of hearing about second life. Anyone else out there feel the same?

Re:Personally

[Fizzl]

_o/

Shit, the game sucks. Well, there's no game to speak of.
"Here's an engine. Build content and prosper (sp?) (and give us some money)"

Re:Personally

[Anonymous Coward]

No. If I didn't want to hear about it, I wouldn't have clicked on the article. Are you stupid?

Re:Personally

[tkinnun0]

No.

Re:Personally

[DerekLyons]

No. Because SL represents what many geeks thought the Internet would end up being back when it (the 'net) first came into the public eye back in the early 90's, a complete and virtually unregulated virtual world. It took Alpha World (and it's eventual failure) to pave the way for Second Life (and There, etc...), and SL will pave the way for the next generation. It bears watching.
 
It's also an interesting sociological and economic experiment. The enviroment of SL is ever evolving.
 
It's pretty sad that the slashgeeks can't see that - and that bashing gets moderated up over discussion.

Is anyone really surprised by this?

[blueZ3]

The whole concept of virtual money that is traded in a virtual environment was a "bank-run" waiting to happen.

Linden-dollars (or whatever they're called) are backed by the full faith and credit of Linden Labs. Which is a lot less comforting to the average person than being backed by the U.S. government. Once Linden starts to lose credibility (and how was money "stolen" from the stock market) all those Lindenbacks are going to be worth the bits they're printed on.

I'm shocked, absolutely shocked to find gambling going on here.

Re:Is anyone really surprised by this?

[venicebeach]

and how was money "stolen" from the stock market

Apparently it was an inside job. Someone involved with fixing the ATM system hacked it. Full story here.

A bit like EVE online?

[Anonymous Coward]

Surely there is nothing wrong with handing over your money to a black box with no audit, no oversight, no controls, that promises 70% interest with no explanation of how in an environment where there is no law enforcement or tracing of assets and anyone can change their appearance and identity instantly.

After all, it says 'bank' on the tin.

You don't think debt is a commodity?

[Colin Smith]

Course it is. Financial institutions sell it to each other (and you) in unimaginably large quantities.

Re:You don't think debt is a commodity?

[morgan_greywolf]

And Linden dollars aren't backed by debt, either? 'Cause if they weren't, why would someone start a bank?

Yes, debt is a commodity of sorts, I suppose. But debt, like Linden dollars, is still virtual, right? If not, post a link to a picture of debt. Point is, there's no physical commodity backing dollars at all. It used to be back by gold, but it's not anymore.

Re:You don't think debt is a commodity?

[Control Group]

Yes, debt is a commodity of sorts, I suppose. But debt, like Linden dollars, is still virtual, right? If not, post a link to a picture of debt. Point is, there's no physical commodity backing dollars at all. It used to be back by gold, but it's not anymore.

That's a bit disingenuous - I challenge to post a link to a picture of "value." The very notion of value is virtual, since the universe certainly doesn't care whether there's gold in them thar hills.

And don't fall into the trap of thinking that gold is somehow magical in its ability to have value. Gold is only valuable because people say it is, just like the US dollar. The only difference is that the scarcity of gold is based on physics and the relative difficulty of building a supercollider, while the scarcity of US dollars is based on the desire of the US to have a functioning economy.

If you don't believe me, think about how you'd value the following if modern civilization were to collapse - potable water, food, matches, ammunition, tobacco, liquor, coffee, paper, gold. Now imagine everyone else thinking the same thing (because civilization has collapsed).

Re:You don't think debt is a commodity?

[dwye]

> f you don't believe me, think about how you'd value the following
> if modern civilization were to collapse - potable water, food,
> matches, ammunition, tobacco, liquor, coffee, paper, gold.

Ammunition can always get you gold, but gold cannot always get you ammunition! Just see The Road Warrior.

Re:You don't think debt is a commodity?

[ameoba]

One advantage of gold is that it's stable, mostly useless and, in most cases, even if it's used it can easily be recovered and put back in a pure form. Food must be eaten or spoil. Ammo is good for one use. Paper will wear out.

OTOH - an economic system that allows somebody to collect more wealth than their descendants can possibly use for generations isn't exactly ideal, either...

Re:You don't think debt is a commodity?

[Control Group]

One advantage of gold is that it's stable, mostly useless...

Being mostly useless is an advantage gold has in terms of being a medium of exchange. My point, however, was specifically that it is useless, and therefore only has value if people agree that it has value. This was intended to be by way of contrast to the other items listed, that have an inherent utility unrelated to their value (or inversely related, if you prefer) as a medium of exchange.

Re:You don't think debt is a commodity?

[Reverend528]

Ammunition can always get you gold

Yes, but liquor can always get you drunk. That's why it's at the top of my list.

Re:You don't think debt is a commodity?

[nine-times]

And don't fall into the trap of thinking that gold is somehow magical in its ability to have value. Gold is only valuable because people say it is, just like the US dollar. The only difference is that the scarcity of gold is based on physics and the relative difficulty of building a supercollider, while the scarcity of US dollars is based on the desire of the US to have a functioning economy.

Right. In fact, the value of gold isn't entirely due to its scarcity, either. I may be exaggerating a bit when I say this, but the value of gold is determined by the fact that it's rare *and* shiny. If it were scarce and grimy, if it were just a rare rock, it probably wouldn't be worth jack. The value of gold has a lot to do with the fact that it was pretty and has traditionally been desirable as a material for jewelry, which means people would hoard it as a status symbol. That's all. It's not some magical inherent value that makes gold valuable, and it's not really scarcity. It's that it's shiny and your girlfriend thinks it's pretty.

Re:You don't think debt is a commodity?

[zobier]

think about how you'd value the following if modern civilization were to collapse - potable water, food, matches, ammunition, tobacco, liquor, coffee, paper, gold. Sounds great, where do I sign up.

Re:You don't think debt is a commodity?

[Colin Smith]

Yes, debt is a commodity of sorts, I suppose. But debt, like Linden dollars, is still virtual, right? If not, post a link to a picture of debt. Point is, there's no physical commodity backing dollars at all. It used to be back by gold, but it's not anymore. Unfortunately true. It should in theory be backed by real physical assets at some point, but the truth is there is unimaginably large amounts of unsecured debt out there and therefore large amounts of unbacked cash.

There are other undesirable aspects to using debt as the commodity backing currency, in particular the fact that it increases exponentially and it has to be paid off. It's a non linear system, it introduces instability and non linearities to the markets.

Saw this coming...

[ZorinLynx]

I knew this was coming.

In the past couple of weeks I heard of at least three people who had trouble getting money out of Ginko.

Word gets around quickly in these cases; as soon as people found out Ginko isn't paying out withdrawls they lose confidence and want their money back, just as would happen with a real bank.

Thankfully I have no money in Ginko. No way in hell I was ever going to trust them.

Re:Saw this coming...

[Erbo]

I was using Ginko myself, primarily to assist in cashflow management. (As a club owner, I need to make payroll on a per-event basis, as well as prize money expenditures.) Needless to say, I've stopped that. My Ginko account has about L$450 in it, primarily interest on earlier deposits that have long since been withdrawn, and I'm pretty sure I won't see that money anytime soon.

Apez might be a better answer for the cashflow management, but my business partner has had trouble with them, too, in the past.

At least...

[wpegden]

at least we're finally seeing some believable estimates as to the number of active second life users. 5 to 6.

Re:At least...

[Source Quench]

You mean that there's a fractional person playing as well? Gadzooks!

Financial markets modeling

[JosefAssad]

We don't get much opportunity to try things like 1000% interest rates or, closer home to me personal experience set, things like permissive microfinance regulation.

It just strikes me that 2L, beyond the incidentals of people potentially losing money, constitutes a relatively contained environment in which to model market effects of regulatory policies.

Funny, but I don't see any sources....

[Zenethian]

Where is this coming from? The SecondLife Linden Exchange market shows no such trend. The L$ is still trading at the same amount it was before the gambling ban announcement, as shown here: https://secure-web3.secondlife.com/currency/market .php (login required). Neither volume nor rate has changed substantially. Sounds like FUD.

Re:Funny, but I don't see any sources....

[Erbo]

The Linden Dollar exchange rate has stayed steady because Linden Lab has been dumping new currency into the market to meet the demand, drawn "right out of the inkwell" and sold on the LindeX by "Supply Linden," their currency-trader account. It'll be interesting to look at next month's economic report (which details exactly how much L$ Supply Linden sold, among other things) and see whether the mass cash-outs by casino owners were able to meet more of the currency demand than LL.

Flies are right!

[VincenzoRomano]

If 50 billions flies eat sh*t, it means that's worth tasting! -50: sub-troll

Holding the mirror up to nature

[TheNicestGuy]

Yes, I'm totally down with the sentiments at http://www.getafirstlife.com/. There is no need for a second life if you've already got a first one.

But then I stop and think for a second, and I realize that Second Life in general, and events like this in particular, and the attention they get, are good things for a specific reason. Most people don't have the vaguest notion how their first life actually works. Getting in on the ground floor of a micro-society that would like to mirror all the stuff its external macro-society has, but has to start from scratch, is incredibly educational.

The gambling ban is one example. Put aside the obvious explanation of conflicts with real-world anti-gambling laws for a moment, and assume that the inherent untrustability of player-run gaming is reason enough. Follow that through, and you realize that the problem could be mostly fixed with a regulatory program of standards, inspections, and certifications. Surprise, surprise: That's exactly what the Nevada Gaming Commission does.

The bank run is an even better example. Someone who takes their real-world bank account for granted may not realize that putting their money into the hands of a stranger with the promise that they can walk up to an ATM and take it back out any time is any riskier. When there's a run and the demand for withdrawals far exceeds funds available, they may realize that their deposits were completely at risk because there was no trusted body that could guarantee that they would keep an eye on the institution's behavior and back them up if they were unable to keep their promises. Guess what: That's the FDIC.

If anyone comes away from Second Life with a little more appreciation for the ways that even the most flawed government allows its constituents to live safer and easier, then I don't hate it. Say what you want about the furries who populate it; it's still an interesting social experiment, and I'm curious to see how closely its development of these kinds of infrastructures will parallel the history the real world. Perhaps people will seize this opportunity for new and creative solutions to well-known problems.

People are stupid to put money into virtual banks

[Trauma_Hound1]

Banks aren't regulated, and for all you know the guy is a scam artist.

Could be worse...

[n dot l]

Could be "Girl builds computer in online game while online boyfriend watches. Look, he has screen shots."

Re:Could be worse...

[QuietLagoon]

You're right, that would be worse.

Much worse.

missed oportunity

[mcmonkey]

should be: from the it's-a-wonderful-second-life dept.

Deductions?

[karlandtanya]

So, the same morons who want to tax SL funny money are going to allow deductions from SL, right?

Oh, wait--they CAN have it both ways. Never mind.

Economic crash of the Linden dollar would help

[Anonymous Coward]

I have to agree that this is probably just a pyramid/ponzi scheme.

That being said, if a virtual bank really wanted to operate in SL, an economic crash of the virtual currency would help them meet their financial obligations. Think of it this way: These banks take deposits in the virtual currency, Linden dollars, which have some exchange rate today like 270 to $1 USD. They advertise a ridiculous interest rate, like say, 100%. Then there's a crash as people pull money out and...guess what? Linden dollars just got dirt cheap. The bank can now buy back linden dollars for pennies on the dollar, and still meet their financial obligations. Of course, investors still lost a lot of real world money due to the currency collapse, much as someone holding Pesos during Mexico's currency collapse. But technically the bank would have met its financial obligations (while presumably making someone at the bank a lot of money, if they turned the deposits of linden dollars into USD and held those while the linden dollar crashed.)

A. Nonymous Coward

Fiat currencies have several problems.

[Colin Smith]

The gold standard is ridiculous and archaic It ended in 1971 after a thousand years of use. Neither ridiculous nor particularly archaic.

There's nothing wrong with fiat currency. It decreases in value every year destroying the value of savings.

It allows the government the ability to pay for anything it likes which leads to the inevitable increases in power of the political elite, the banks and the largest multinational corporations which service government interests.

It requires an exponentially increasing economy and debt burden just to maintain the status quo and make interest payments. This has a devastating effect on the environment and human being's work/life balance.

Those are just off the top of my head. There are more disadvantages.

The currency shapes our society.

Re:Fiat currencies have several problems.

[Anonymous Coward]

The value of first-world fiat currency has been far more stable than the value of gold. A gold-standard economy can collapse for no meaningful reason simply because the supply of gold is restricted. Those "thousand years" you mention were filled with wars over a useless metal!

Re:Fiat currencies have several problems.

[2short]

"It allows the government the ability to pay for anything it likes..."

The gold standard has nothing to do with this. The government pays for things it can't afford by borrowing money, not by printing it. When the money supply is increased, the government doesn't get the money.

Re:Fiat currencies have several problems.

[sleeper0]

The gold standard is ridiculous and archaic It ended in 1971 after a thousand years of use. Neither ridiculous nor particularly archaic.

There's nothing wrong with fiat currency. It decreases in value every year destroying the value of savings. So just to be clear, you're saying there was no inflation in the USD prior to 1971?

Re:Fiat currencies have several problems.

[Shelrem]

The gold standard is terrible, leads to recessions, and in general unnecessarily constrains the economy. Here's a hint: if you think money is generally created by printing more currency, you obviously don't know what the hell you're talking about. Even if you understand how money is created, you still may not. For a thorough debunking of the gold standard, read this: http://web.mit.edu/krugman/www/goldbug.html

For an introduction on how money is created, try this: http://ingrimayne.com/econ/Banking/Commodity2.html

Re:Fiat currencies have several problems.

[Knara]

Of course there wasn't! GOLDGOLDGOLDGODLGOLDGOLD!!!!!!!!111

I'm fairly certain that those who base their entire dislike of the movement away from "gold standards" in currency matters overlap to a great extent with those who don't really understand economics on some imaginary Venn diagram.

Re:Fiat currencies have several problems.

[Belacgod]

As opposed to governments devaluing the currency, coin-clipping, and other such practices, which never happened pre-1971?

Re:Fiat currencies have several problems.

[Anonymous Coward]

Currency by fiat isn't inheirently bad. If the government has the trust of the people (it doesn't) and is run in a competent manner (it isn't), then congress coining money out of thin air is okay. Right now we have the banks also making fiat money. Federal reserve requirements are 100%, so when a bank makes loans it doesn't have "money" to back it up. Fiat. Thus the nature of a bank run, eh? Up that reserve rate baby. Congress is the only entity allowed to coin money anyway. Its right in that Constitution. Down with the banks!

Re:Fiat currencies have several problems.

[darjen]

Not surprising that Krugman, being a Keynesian, would hold the position that gold is a barberous relic. For a more sound understanding of how fiat money causes the business cycle:

The Case for the 100 Percent Gold Dollar

Re:Fiat currencies have several problems.

[Anonymous Coward]

But why gold? Wouldn't oil be a better standard?

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

I disagree with Krugman for the first time since I've been reading him. I think Massive Deflation would be a great thing for just about everybody *except* the very rich. In fact, given the Free Traitors running our trade policy, a 1:240 decrease in the value of the dollar would be a great boon for people trying to find a living wage in this country. If $1/day was a living wage, we could compete effectively with the third world for jobs.

Re:Fiat currencies have several problems.

[Anonymous Coward]

Minus the eroding purchasing power of the US Dollar created by a floating currency...if you work hard, stash $100,000 in a friends house for retirement, call him in twenty years, it won't matter if the line says "Please insert $200 for another minute."

Fiat money naturally causes inflation, and the savings rates at almost all US Banks don't even surpass inflation. That's a main objection to it.

Re:Fiat currencies have several problems.

[Grimbleton]

Because quite frankly, I'd rather swim in a vault of gold than of oil.

Re:Fiat currencies have several problems.

[Anonymous Coward]

You of course understand economics and that's why you call it economics without specifying which school you're talking about. Are you talking about Keynesian economics, the Chicago school economics or maybe the Austrian school?

I'm just going to go ahead and guess that you're talking about Keynesian economics and somehow think there is just one school and everyone agrees.

Re:Fiat currencies have several problems.

[servognome]

I think Massive Deflation would be a great thing for just about everybody *except* the very rich.

Even though much of the wealth of the very rich is tied up in assets, they still have far more cash than the poor. Poor people would spend a greater percentage of their income on goods & services and therefore would not be able to capitalize on the increasing value of cash.

Re:Fiat currencies have several problems.

[Mr. Bad Example]

> Here's a hint: if you think money is generally created by printing more currency,
> you obviously don't know what the hell you're talking about.

Wait...wh-? Seriously?

Oh, shit. Excuse me--I have to call Kinko's and cancel an order right now.

Re:Fiat currencies have several problems.

[nocaster]

The value of first-world fiat currency has been far more stable than the value of gold. A gold-standard economy can collapse for no meaningful reason simply because the supply of gold is restricted. Those "thousand years" you mention were filled with wars over a useless metal!

And all the wars stopped when we started using Federal Reserve Notes.

Re:Fiat currencies have several problems.

[Anonymous Coward]

I don't see how a fixed supply of money would change the fact that people demand a return on their investments.

There is no reason to expect money not invested to retain its value forever.

Re:Fiat currencies have several problems.

[servognome]

It ended in 1971 after a thousand years of use. Neither ridiculous nor particularly archaic.

Or it ended anytime the government felt like it (eg to pay for wars). Basically the key reason to use a gold standard, to prevent overspending by government, never worked in practice

It decreases in value every year destroying the value of savings.

Forcing investment, which is a much better use for capital to expand the economy.

It requires an exponentially increasing economy and debt burden just to maintain the status quo and make interest payments. This has a devastating effect on the environment and human being's work/life balance.

It requires and exponentially increasing economy to meet the demands of exponentially increasing populations. An economy based on a fixed resource results in deflation which will actually prevent the economy from keeping pace with population. For example it was difficult for farmers in the late 19th century to get capital because of the fixed gold based money supply. With supply and demand, the rich will get richer just sitting on money, rather than what we have today where it requires investment and economic expansion to become wealthier.

Re:Fiat currencies have several problems.

[smaddox]

Just because currency isn't "just printed" right now, doesn't mean it couldn't be.

After WWII, Germany was required to pay a ridiculous retribution tax to the allies. How could a economically and culturally broke country afford to pay retribution? Well by printing millions and millions of bills of course. The bills quickly became worthless, leading to several accounts of people paying for a loaf of bread with a wheel-barrel full of bills.

Obviously, this is an extreme, and our government would never let something like this happen.... Right????

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Even though much of the wealth of the very rich is tied up in assets, they still have far more cash than the poor. Poor people would spend a greater percentage of their income on goods & services and therefore would not be able to capitalize on the increasing value of cash.

For the very poor, this is true- but their cash will go further. Of course, they're already spending 108% of their income on goods and services- so it'd be hard to spend a greater percentage.

Re:Fiat currencies have several problems.

[jackhererUK]

No idea where you get your figures from, the US abanonded the gold standard in 1933 after about 50 years of use. http://en.wikipedia.org/wiki/Gold_standard

Re:Fiat currencies have several problems.

[Dolly_Llama]

Not surprising that Krugman, being a Keynesian,

"We're all Keynesians now." --Richard Nixon

There's truth to that too. The primary difference between the Keynesians is more who gets the government money than anything else.

Re:Fiat currencies have several problems.

[macman2k]

The question isn't about gold or silver or any other commodity. The question has to do with the supply of money and who is allowed to create it and why!

Debt based money, like the US Dollar (and most modern currencies) creates new money whenever someone takes out a loan. The problem is, the interest due on that loan is never created. As a result more loans must be taken out or someone must default.

Wealth is never "created" it is only transfered. If you let one person "create" new money (by any means), then they stole wealth from everyone else who is holding that kind of money.

The gold standard (as it existed through most of history) is based upon the fraud that is fractional reserve banking. That is, a bank is allowed to create money from nothing so long as it doesn't exceed 10x deposits. As a result we get inflation which causes artificial demand and economic growth followed by deflation (defaults on loans) which are economic busts. Banks fail because they issues more receipts than they had gold deposits (fraud).

A real gold standard with 100% reserve banking would automatically maintain steady/maintainable growth and increase the purchasing power of money over time as society becomes more productive. You would not need a pay raise because as society improves efficiency prices of everything relative to the fixed supply of money would decrease.

Who should be allowed to create money and why?

A gold standard insures that no one can just "create money" because it costs money to mine gold and there is only so much that can be mined. Gold is also easily divisible and very dense. It is also hard to counterfeit.

Re:Fiat currencies have several problems.

[Shelrem]

Sure, and Zimbabwe does the same thing and has horrible inflation. However, in most economies, that's not how money is generated.

That's why I used the word "generally." ;)

Re:Fiat currencies have several problems.

[Knara]

I'm just going to go ahead and assume that since you posted as an AC, that you looked up "economics" on Wikipedia in order to try to "zing!" me, and not bother to argue with you. kthx.

Re:Fiat currencies have several problems.

[Anonymous Coward]

You say:

Wealth is never "created" it is only transfered. If you let one person "create" new money (by any means), then they stole wealth from everyone else who is holding that kind of money.

I'm trying hard to figure out what the fuck you think "wealth" could mean. Do you think wealth is a stock of money? Doesn't wealth mean value though, so isn't your sentence like saying "value is never 'created' it is only transfered". You could say the same about work -- work is never "created" it is only transferred. If you do the work at night, it is "transfered" from the sandman to you... When a Doctor extends a life, more days aren't "created" in the life of that person, but only "transferred" from the afterlife? When a new algorithm is developed, it's not "created" but only "transferred" from the "List of Possible Algorithms" to the "List of Algorithms In Use"? WTF is your thinking????

Re:Fiat currencies have several problems.

[Shelrem]

The ridiculously high rate of deflation required to reach a 1:240 increase in the value of the dollar (which is I assume what you meant) would ensure that no one ever invested because the best form of investment is to convert your money into bank notes (backed by gold, in this case) and stick it under your mattress. Basically all investment would stop and every company would be liquidated because it would be impossible to beat investing in bank notes. The economy would dry up overnight.

A modest level of inflation ensures that the best way to keep your wealth around is to invest, whether it be in bonds, stocks, commodities, etc., and that ensures that people are able to do business and keep their jobs. Try having a living wage when there are no jobs.

Also, good luck with the national debt that's now 240 times larger, and still needs interest paid on it, especially because the return on bonds would have to beat the rate of deflation, so interest rates on our debt would skyrocket.

Basically, the idea that a 1:240 increase in the value of the dollar over any reasonable time-frame would be beneficial is absolutely absurd.

Re:Fiat currencies have several problems.

[Anonymous Coward]

"There is no reason to expect money not invested to retain its value forever."

The secret is that Goldbugs want it to be non-sensical to say the phrase "money not invested", because they want all "money" to be 100% invested in Gold. Any other use is beyond that of the initial investment. Kind of like if I think only Google stock is worth anything on this planet, and immediately trade all my money for it (smirking at the fact that some idiot thought whatever he was using instead of Google stocks actually had any value), I can still try to influence what Google does through voting / petitioning them, etc. So, I want to be able to make some use in the world of my 100% invested money. Goldbugs are the same way - they say, sure, use money -- but only after it's 100% invested in Gold. Mining or otherwise producing gold is the only legitimate creation of wealth to them -- anything else is not a creation of wealth, but rather of "Not Money". Maybe you can get someone to pay you with Money (gold or notes representing gold) in exchange for giving them Not Money, and that's exactly the kind of suckers they're looking for. To them, an exchange of anything for "money" (100% invested in gold) is the same as for me giving some of my time, say 80 hours, of work, in exchange for HUGELY undervalued stock. basically, they think that Gold is UNDERVALUED, since it's the ONLY thing of value in the world, and everything isn't worth 1 hour of work, unless you could somehow trade it for gold quick enough that the seller doesn't realize they had something worthless (not backed by gold).

basically, it's a wonder that goldbugs even eat or drink, since a tomato isn't backed by gold. When you buy it, you're buying an object that is 100% invested in being that object, and 0% invested in standing for gold in some vault. Idiots.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

The ridiculously high rate of deflation required to reach a 1:240 increase in the value of the dollar (which is I assume what you meant) would ensure that no one ever invested because the best form of investment is to convert your money into bank notes (backed by gold, in this case) and stick it under your mattress. Basically all investment would stop and every company would be liquidated because it would be impossible to beat investing in bank notes. The economy would dry up overnight.

Yes it would. It's painful going backwards. But in three days, the cities would run out of food, and that money would start coming back out of the mattresses.

A modest level of inflation ensures that the best way to keep your wealth around is to invest, whether it be in bonds, stocks, commodities, etc., and that ensures that people are able to do business and keep their jobs. Try having a living wage when there are no jobs.

There'd still be jobs- people still need to eat after all. It'd just happen at a lower level is all. The people who wouldn't be touched would be those who have no wealth to begin with.

Also, good luck with the national debt that's now 240 times larger, and still needs interest paid on it, especially because the return on bonds would have to beat the rate of deflation, so interest rates on our debt would skyrocket.

That is a good thing- it's high time America stopped living on debt. Make credit completely inaccessible would be a good thing- it'd force EVERYBODY to live within their means.

Basically, the idea that a 1:240 increase in the value of the dollar over any reasonable time-frame would be beneficial is absolutely absurd.

Only if you think keeping the current standard of living on debt is sensible. Because that's the other option.

Re:Fiat currencies have several problems.

[Anonymous Coward]

Sweet reply, wish I had mod points.

Re:Fiat currencies have several problems.

[Shelrem]

Yes it would. It's painful going backwards. But in three days, the cities would run out of food, and that money would start coming back out of the mattresses. Actually, those with money would leave the country and live well because their cash just became worth a whole lot more. Those without would starve.

There'd still be jobs- people still need to eat after all. People certainly do need to eat, but there would be no investment. Most likely what you would see would be alternate fiat currency like we saw during the great depression.

That is a good thing- it's high time America stopped living on debt. Make credit completely inaccessible would be a good thing- it'd force EVERYBODY to live within their means. It would mean that we'd be in the same position as Germany pre-WW2. Either we keep paying or we default on our loans. Defaulting on our loans would cause a world-wide economic disaster, so the most likely course of action for other countries that thought we were going to do so would be to threaten to invade if we tried it.

Only if you think keeping the current standard of living on debt is sensible. Because that's the other option. It is sensible precisely because it works and doesn't cause us to ruin billions of lives by sending the entire world into a depression.

Re:Fiat currencies have several problems.

[Anonymous Coward]

I am the AC parent.

Or it could be that I just can't be arsed to get an account. I also don't think I've read the wikipedia article on economics. I might've read the entries on some of the major players but I really can't remember.

So how's about an answer to my question?

Re:Fiat currencies have several problems.

[servognome]

For the very poor, this is true- but their cash will go further. Of course, they're already spending 108% of their income on goods and services- so it'd be hard to spend a greater percentage

Which is why inflation helps them, since in that environment the value of debt decreases.

Re:Fiat currencies have several problems.

[Anonymous Coward]

You had better run around slaying farmers and artisans for creating wealth. They should spend their time moving gold from one place to another, like any responsible person would do.

Re:Fiat currencies have several problems.

[Anonymous Coward]

There was very little inflation during the first 140 years of this nation's history. We now have more in a year or two than we did in that entire period.

Re:Fiat currencies have several problems.

[tylernt]

I've often thought that a food standard would be interesting. Seriously. Grow more food, increase the money supply. Food goes bad or gets eaten, the money supply decreases.

I'm not saying a food standard would necessarily be a good thing, but it's fun to think about.

Re:Fiat currencies have several problems.

[Lost Engineer]

Deflation creates its own very real problems. Ask a Japanese person. This whole gold standard thing is about having a stable currency, not that I'm convinced it would work.

Re:Fiat currencies have several problems.

[Watson Ladd]

Interest rates are much higher then inflation.

Re:Fiat currencies have several problems.

[servognome]

Interest rates are much higher then inflation.

And they would be even higher in a deflationary economy as the economic risk would be higher.

Re:Fiat currencies have several problems.

[drsquare]

I think this thread is living proof as to why no-one listens to communists.

Re:Fiat currencies have several problems.

[servognome]

The problem is, the interest due on that loan is never created.

The interest due on the loan is created in the future. Debt/csavings allow timeshifting of wealth at a marginal cost. Don't confuse personal loans with capital debt. Using a credit card to pay for dinner is vastly different from borrowing money to start a new company.

Wealth is never "created" it is only transfered

So the value of the economy now is the same as the value of the economy in the 1700's. Basic macroeconomics describes how wealth is created as the economy expands.

A real gold standard with 100% reserve banking would automatically maintain steady/maintainable growth and increase the purchasing power of money over time as society becomes more productive

No it wouldn't, market liquidity for investment would be drastically reduced. People couldn't buy houses because they can't take out loans, and businesses can't take out short-term debt for expansion.

A gold standard insures that no one can just "create money" because it costs money to mine gold and there is only so much that can be mined. Gold is also easily divisible and very dense. It is also hard to counterfeit.

And a gold standard has and would be abandoned in the name of national emergency

Re:Fiat currencies have several problems.

[WNight]

It doesn't take name dropping to understand that the only value of gold over money are that it has some innate value and the supply is relatively known. It's still a fiat currency. Who can eat gold?

Better if you realize that currency, gold or otherwise, isn't a good store of value. Productive land is. Means of production are. Currency is just what lets you trade one for another at some moment in time. The relative stability of currency has led people to try to hold value in it alone, then getting mad at the government when an arbitrary relationship of numbers to stuff doesn't remain constant for multiple lifetimes...

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Actually, those with money would leave the country and live well because their cash just became worth a whole lot more. Those without would starve.

If those with money left this country in the dead of night, those without could simply raid the storehouses of food left behind. OR, better yet, actually take over the farms stolen by the white man to begin with.

People certainly do need to eat, but there would be no investment. Most likely what you would see would be alternate fiat currency like we saw during the great depression.

Fine with me. Alternate fiat currency takes control out of the hands of the central bankers and returns it to where it belongs, the local villages.

It would mean that we'd be in the same position as Germany pre-WW2. Either we keep paying or we default on our loans. Defaulting on our loans would cause a world-wide economic disaster, so the most likely course of action for other countries that thought we were going to do so would be to threaten to invade if we tried it.

We're going to default on our loans anyway, eventually, so why not do it in one fell swoop? It's not like anybody believes the lie that wealth is created out of nothing, and that's what we have left in the United States at this point, a service economy, a whole lot of nothin'.

It is sensible precisely because it works and doesn't cause us to ruin billions of lives by sending the entire world into a depression.

And it's completely unsustainable and will eventually collapse, ruining billions of lives and sending the entire world into a depression anyway. Once again, all this does is hasten the inevitable.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Which is why inflation helps them, since in that environment the value of debt decreases.

But since one needs increased debt to survive, the debt amount goes up anyway. It's completely unsustainable in the long run- we'd be better off biting the bullet and taking the depression now, when it might be managable, than later. And learning the lesson to NEVER BORROW AGAIN.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

A necessary step towards the gold standard is solving the imbalance of worldwide standard of living. Somehow you're going to have to get the below-average American workers to accept the same $1/day (and live on that) that 3 billion other below-average workers receive. That is going to take some SERIOUS deflation in prices.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Or rather, why nobody listens to Shakespeare. After all, this little nugget of economic wisdom comes to us from not Marx, but from Polonius' advice to Laertes. I'm hardly the first to say it.

Re:Fiat currencies have several problems.

[Jon Abbott]

[Fiat currency] allows the government the ability to pay for anything it likes which leads to the inevitable increases in power of the political elite, the banks and the largest multinational corporations which service government interests. Which is exactly why all of us should vote for Ron Paul in the primaries and general election next year. He is an advocate for returning U.S. currency to the gold standard. He has written and given countless speeches about gold and our monetary policy. He even predicted the dot-com bubble three years before it happened (see the 4th paragraph in this article). If there is one candidate who can help stop the runaway borrowing and spending in Washington, this guy is it.

Re:Fiat currencies have several problems.

[Jon Abbott]

Correction: Ron Paul's prediction of the dot com bubble bursting was under the the 4th paragraph under the "7/22/97" section.

Re:Fiat currencies have several problems.

[DavidShor]

There were far less people dead from wars in the 40 years after 1971 then before.

Re:Fiat currencies have several problems.

[DavidShor]

What measures do you exactly recomend to "bite the bullet"?

Re:Fiat currencies have several problems.

[DavidShor]

"If those with money left this country in the dead of night, those without could simply raid the storehouses of food left behind. OR, better yet, actually take over the farms stolen by the white man to begin with."

Farms? Agriculture makes up less than 1% of GDP. There is no shortage of food in this country, as a college student my food budget was $3 dollars a day, anyone can obtain that. It would not be farmers who would be missed, but Doctors, Engineers, Programmers, Professors, every skilled worker in the country.

And it's completely unsustainable and will eventually collapse, ruining billions of lives and sending the entire world into a depression anyway. Once again, all this does is hasten the inevitable.

Explain why this collapse is inevitable?

Re:Fiat currencies have several problems.

[DavidShor]

I don't want to nitpick, but around 800 million people live on less than a dollar a day, and in many of those places, money equivalents come from aid and farming. Not that it is pleasant or acceptable, but I felt that it needed to be pointed out. And if we are all reverting to a global average, the GDP per capita of the world is between 7-10 thousand a year(depending on how you define GDP), coming out to about $28 dollars a day.

And I don't see how the Gold standard and income inequality are related, the world has a much more egalitarian distribution of money now then we did back when the Gold standard were around.

And finally, wouldn't it be better to bring the rest of the world to our standard of living then vice versa? Contrary to communist belief, we are not rich off of their exploitation and poverty, but because of a lack of development. Most of the third world is growing at a more rapid rate then the west (Essentially all of Asia, most of Latin America, a couple of bright spots in Africa), so they will catch up with us eventually.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Isolationism, with the corresponding compression of our own economy, default on foreign loans, and rebuilding of our own agricultural and industrial capability that represents. After a period of time, when we can afford it, slowly rejoining the international community as equals (for the destruction of our economy will make us a third world nation), trading in barter rather than in money, only those goods we have in surplus and only for those natural resources that we don't have sources of within America. And never again expand our trade past that.

This means we'll have to start teaching people to live only within their means- no credit (not that the isolationism won't take care of that anyway with deflation of prices and interest rates shooting through the roof). And as a country, we're going to have to reduce our population to the carrying capacity of the land (about 2/3rds what it is now)- but good isolationism will do that anyway as we lose the population replenishment of 3 million new immigrants a year. It will be PAINFUL. But it's either do it now, ourselves, on our own terms, or do it later when we have 600 million citizens and are dependent upon third world farmers for every morsel of food available.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Farms? Agriculture makes up less than 1% of GDP. There is no shortage of food in this country, as a college student my food budget was $3 dollars a day, anyone can obtain that. It would not be farmers who would be missed, but Doctors, Engineers, Programmers, Professors, every skilled worker in the country.

For 3 billion people on this planet, their income is less than $1/day, 1/3rd of what us Americans need to merely buy food. That's the point we will need to get to if we're going to have jobs again- that's who we are competing with. The Doctors, Engineers, Programmers, Professors and skilled workers are luxuries we can only afford by borrowing money against the future.

Explain why this collapse is inevitable?

The collapse is inevitable because eventually, the banks will get wise to the fact that using inflation to erase debt is the equivalent of a default on the loan anyway, and stop lending us the money that we use to run this country. At that point, skilled workers who don't have basic survival skills will need to move to China or India- because Europe and America will be third world nations, unable to afford those skills.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

I don't want to nitpick, but around 800 million people live on less than a dollar a day, and in many of those places, money equivalents come from aid and farming. Not that it is pleasant or acceptable, but I felt that it needed to be pointed out. And if we are all reverting to a global average, the GDP per capita of the world is between 7-10 thousand a year(depending on how you define GDP), coming out to about $28 dollars a day.

The trouble is, we're not reverting to the global average, but rather the race to the bottom- the cheapest labor gets the jobs, regardless of what the job is or what the skill level is.

And I don't see how the Gold standard and income inequality are related, the world has a much more egalitarian distribution of money now then we did back when the Gold standard were around.

Only if you think 2% of the population owning 98% of the resources is egalitarian. As opposed to 25% of the population owning 75% of the world's resources- as it was back in 1900.

And finally, wouldn't it be better to bring the rest of the world to our standard of living then vice versa?

Depends on who you are- it would be better for them, but it's not better for the multinational corporations that own it all and control the strings.

Contrary to communist belief, we are not rich off of their exploitation and poverty, but because of a lack of development. Most of the third world is growing at a more rapid rate then the west (Essentially all of Asia, most of Latin America, a couple of bright spots in Africa), so they will catch up with us eventually.

Not if the race to the cheapest labor encouraged by cheap credit and fiat currency continues. Then, in that scenario, they get just developed enough to provide services, then their factories get raided as soon as wages begin to increase to move the machinery to the next cheap labor nation. If we're ever going to get our manufacturing capability back, we're going to have to provide a workforce that can live as cheaply as theirs do.

Re:Fiat currencies have several problems.

[DavidShor]

Your suggestions entail the complete destruction of the most developed economy in the world. Unless your explicit goal is destruction, I don't think this is necessary.

Re:Fiat currencies have several problems.

[DavidShor]

"The trouble is, we're not reverting to the global average, but rather the race to the bottom- the cheapest labor gets the jobs, regardless of what the job is or what the skill level is."

This would imply that employment would be dropping rapidly in developed countries (Not true, actually on the downswing), and economic growth would be negative in richer countries (Once again, not observed). Most of all, it would imply that the poorest countries have the lowest levels of unemployment (once again, unobserved).

"Depends on who you are- it would be better for them, but it's not better for the multinational corporations that own it all and control the strings."

It certainly seems like it would be better for everyone, Americans do not become poor, and Africans become rich.

"Only if you think 2% of the population owning 98% of the resources is egalitarian. As opposed to 25% of the population owning 75% of the world's resources- as it was back in 1900."

A single number can never reliably measure a statistical distribution. Back then, entire continents were devoid of any sort of wealth.

Re:Fiat currencies have several problems.

[servognome]

Basically your proposals are to abandon all the ideals that the country was founded upon. The same "sustainability" argument has been used in various forms for hundreds of years, technology and social changes have overcome the issues time & time again.

Re:Fiat currencies have several problems.

[servognome]

But since one needs increased debt to survive, the debt amount goes up anyway.

Individual debt is not needed to survive, the problem is individuals learning to manage their budgets.

And learning the lesson to NEVER BORROW AGAIN.

Debt is necessary for economic expansion and is not necessarily a bad thing.

Re:Fiat currencies have several problems.

[mrraven]

Rather than expanding the economy how about a steady state population? Hint resources do not =infinite. At some point this fancy pyramid scheme is going to crash.

Re:Fiat currencies have several problems.

[drsquare]

Well, if it's in an ancient play, then it must be right.

Re:Fiat currencies have several problems.

[servognome]

Rather than expanding the economy how about a steady state population? Hint resources do not =infinite. At some point this fancy pyramid scheme is going to crash.

Not that I totally disagree with you, but that solutions has serious philosphical and moral concerns. Look at population control in china, should we just let those in arid regions of Africa die because the land cannot support them?
There were those who argued the world could not adequeately support over 1 billion people. Time and again humans have found ways to overcome the natural environment and better utilize limited resources. Rather than just blow up the pyramid and give up, why not ride it out and see how far human ingenuity can take us.

Re:Fiat currencies have several problems.

[mrraven]

The longer we wait if you are wrong the greater the suffering will be when the crash comes. Hint the the "green revolution" failed in many parts of the third world due to salinization of the soil.

http://www.montysplantfood.com/docs/salinization.h tm
http://www.ias.ac.in/currsci/feb25/articles16.htm

This is just one problem, once fossil fuels get scarcer and scarcer in the next 20 years we are in real trouble for hey are the basis of fertilizers that allow for a temporary increase in agricultural productive of the soil at the expense of it's natural fertility. Once the fossil fuels are gone or are too expensive to use as fertilizers we face the trifecta of increasing population, degraded soil, and no easy way to build soil fertility up above it's natural levels that would be required to support "green revolution" expanded populations. And no we won't be able to eat Eric Drexler's nanotech, brain uploads, or other other inventions imagined by techno optimists.

So sorry I don't share your pie in the sky faith I prefer empirical realism, thanks.

Re:Fiat currencies have several problems.

[servognome]

The longer we wait if you are wrong the greater the suffering will be when the crash comes

Again I don't totally disagree with you, though there are still moral/philosophical hurdles when you simply quantify suffering by numbers. What's worse 4 billion people dying now, or the possibility of 10 billion dying in the future?

This is just one problem, once fossil fuels get scarcer and scarcer in the next 20 years we are in real trouble for hey are the basis of fertilizers that allow for a temporary increase in agricultural productive of the soil at the expense of it's natural fertility. Once the fossil fuels are gone or are too expensive to use as fertilizers we face the trifecta of increasing population, degraded soil, and no easy way to build soil fertility up above it's natural levels that would be required to support "green revolution" expanded populations

Because there are no other possible ways of creating fertilizers, or geneticly modifying food sources to require less. Then there's always the "Modest Proposal"/"Soylent Green" scenarios.

And no we won't be able to eat Eric Drexler's nanotech, brain uploads, or other other inventions imagined by techno optimists.

And man will never fly or go to the moon

So sorry I don't share your pie in the sky faith I prefer empirical realism, thanks.

I would call that empirical cynicism, since empirical evidence shows that humanity has been able to constantly adapt and flourish.
The biggest mistake most futurists make is underestimating change. 100 years ago most of what we have could not even be imagined. If you look at the rapid development of genetics & technology, and how they are increasingly being integrated not just into our lives but into our bodies... humanity may not even look like its current form.

Re:Fiat currencies have several problems.

[mrraven]

Faith in exponential growth does not equal emperacism in agricultural, it equals faith like religion. Alas I am an atheist and think your faith is not even charmingly naive.

Re:Fiat currencies have several problems.

[servognome]

Faith in exponential growth does not equal emperacism in agricultural, it equals faith like religion. Alas I am an atheist and think your faith is not even charmingly naive.

I see exponential growth in economics and agriculture as I do moore's law. There is nothing fundamentally forcing it, and there is no visibility into how it can be achieved in the distant future, yet you cannot deny the empirical evidence that it's true.
Alas I am agnostic, I have my doubts about infinate sustainability (which is why I do not totally disagree with your views), yet I still recognize there are are a variety of methods, some we haven't even imagined, of overcoming those shortcomings in the future - there's still a whole universe of resources out there. Looking back through history, I find siding with human survival to be the best bet.

Re:Fiat currencies have several problems.

[mrraven]

If you are driving on a smooth road towards a cliff the past looks A-OK yet projecting that past into the future is foolish, something to think about.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Your suggestions entail the complete destruction of the most developed economy in the world.

No empire lasts forever- and free trade is in the process of destroying this one.

Unless your explicit goal is destruction, I don't think this is necessary.

Actually, my explicit goal is construction- construction of a self-sufficient America that doesn't need to involve itself in foreign resource wars because we live within our means on manufactured goods that are designed and built in America for Americans. But of course, that's to hard for the Free Traitors who are addicted to cheap labor and "comparative advantage".

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

This would imply that employment would be dropping rapidly in developed countries (Not true, actually on the downswing)

No, that would imply that employment in developed countries would be ending manufacturing and agriculture, and being replaced with SERVICE jobs (since all goods are produced elsewhere). Which is actually the case.

and economic growth would be negative in richer countries(Once again, not observed).

Depends on the segment you're looking at. If you remove multinational corporations from the equation and look only at domestic industries creating domestic goods for domestic consumers, you'll observe negative economic growth. In fact, you'll observe total economic destruction.

Most of all, it would imply that the poorest countries have the lowest levels of unemployment (once again, unobserved).

India has the lowest level of unemployment today among call center workers, China has low unemployment. If you're not observing this, you're blind.

It certainly seems like it would be better for everyone, Americans do not become poor, and Africans become rich.

Bullshit- the multinational corporations become rich and everybody else becomes wage slaves.

A single number can never reliably measure a statistical distribution. Back then, entire continents were devoid of any sort of wealth.

Incorrect- the continents had wealth, just unexploited by your multinational corporate masters who are trying to profit from the exploitation of workers.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Basically your proposals are to abandon all the ideals that the country was founded upon.

Those ideals were abandoned the day we signed NAFTA.

The same "sustainability" argument has been used in various forms for hundreds of years, technology and social changes have overcome the issues time & time again.

It's the second that I fear the most. Social changes is just a code word for depression and war.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Individual debt is not needed to survive, the problem is individuals learning to manage their budgets.

Then why do 75% of college students take more than 10 years to pay off their school loans?

Debt is necessary for economic expansion and is not necessarily a bad thing.

WRONG. Debt is fake economic expansion that carries with it the forces that create depressions and the downswing of the business cycle. Debt is an evil that should NEVER be used, by anybody. After all, as you said above, the problem is individuals who can't manage a budget. That's the only reason anybody ever goes into debt- because they're trying to live beyond their means.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

If you forget the wisdom of your ancestors, which was won by fighting through history, then it is the same as forgetting the history itself. If I had followed Polonius's advice during the .com era, I'd be a relatively rich man by now. I didn't, so instead it will be another year before I'm done with the credit counseling service.

And I see the same thing happening with American businesses that expand faster than their means, and certainly with the American government that seems to think Chinese Savings Accounts grow on trees and can be borrowed from indefinitely. We're all a bunch of idiots to borrow in the first place. And that includes any brilliant software company that is stupid enough to go public and borrow money from investors.

Re:Fiat currencies have several problems.

[servognome]

WRONG. Debt is fake economic expansion that carries with it the forces that create depressions and the downswing of the business cycle. Debt is an evil that should NEVER be used, by anybody. After all, as you said above, the problem is individuals who can't manage a budget. That's the only reason anybody ever goes into debt- because they're trying to live beyond their means.

Debt is a timeshift of wealth and allows the purchase of capital which can reap more rewards in the future. There is a big difference between borrowing to buy something, and borrowing to make a capital investment. If you borrow to allow yourself to make more money that's a good thing. For example borrowing money to buy a computer and start your own business, or borrowing to pay for your education.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Debt is a timeshift of wealth and allows the purchase of capital which can reap more rewards in the future.

And since nobody can foretell the future, there is NO guarantee that the purchase of capital will reap more rewards in the future. Since there is no such guarantee, basically it becomes a realtime shift of ownership from the borrower to the creditor.

There is a big difference between borrowing to buy something, and borrowing to make a capital investment.

Only if you are 100% certain that the capital investment won't be undermined by, say, a new international treaty that sends your entire industry overseas.

If you borrow to allow yourself to make more money that's a good thing. For example borrowing money to buy a computer and start your own business, or borrowing to pay for your education.

Actually, I found that in both cases that was a fallacy- because neither a computer, your own business, nor an education can guarantee that you'll make more money than you borrowed. A sudden shift in the industry ends up leaving you with tens of thousands of dollars of credit card debt, and neither business nor job to pay for it. Some would say that's what bankruptcy laws are for- but in 2001 they redid the bankruptcy laws that means you have to pay that money back regardless.

Re:Fiat currencies have several problems.

[servognome]

And since nobody can foretell the future, there is NO guarantee that the purchase of capital will reap more rewards in the future. Since there is no such guarantee, basically it becomes a realtime shift of ownership from the borrower to the creditor.

Actually you have it backwards, the real-time shift of wealth goes from the creditor to the borrower. The creditor is the one taking the risk since it is their capital that is being borrowed.

Only if you are 100% certain that the capital investment won't be undermined by, say, a new international treaty that sends your entire industry overseas.

Or that a giant meteor doesn't hit the earth.

Actually, I found that in both cases that was a fallacy- because neither a computer, your own business, nor an education can guarantee that you'll make more money than you borrowed. A sudden shift in the industry ends up leaving you with tens of thousands of dollars of credit card debt, and neither business nor job to pay for it.

Should I not get a job, because afterall the company could go under the next day and I don't get paid. Life is full of risk, the key to be successful is finding the right mix of risk vs reward.

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Actually you have it backwards, the real-time shift of wealth goes from the creditor to the borrower. The creditor is the one taking the risk since it is their capital that is being borrowed.

I'll give you that one- I did have it backwards. The creditor gets the ownership, and therefore the control.

Or that a giant meteor doesn't hit the earth.

Far more likely that the WTO will target your industry, just like they've targeted Textiles, TV sets, VCRs, magnets, etc. Their entire aim is to sell off the United States one group of jobs at a time.

Should I not get a job, because afterall the company could go under the next day and I don't get paid. Life is full of risk, the key to be successful is finding the right mix of risk vs reward.

A PROPERLY engineered system minimizes risk by minimizing chaos. Only a very bad engineer could support chaos.

Re:Fiat currencies have several problems.

[edittard]

Which is why inflation helps them, since in that environment the value of debt decreases.

One mans's debt is another man's investment.

Re:Fiat currencies have several problems.

[servognome]

I'll give you that one- I did have it backwards. The creditor gets the ownership, and therefore the control.

Only for individual debt, for business debt which is much larger the "ownership" is reversed. If you owe the bank $1000 they control you, if you owe the bank $100M you control them.

Far more likely that the WTO will target your industry, just like they've targeted Textiles, TV sets, VCRs, magnets, etc. Their entire aim is to sell off the United States one group of jobs at a time.

And each time the US economy has become stronger because of it

A PROPERLY engineered system minimizes risk by minimizing chaos. Only a very bad engineer could support chaos.

Only if the chaos can be controlled. If chaos (which most systems of human interaction are) is inevitable, the best engineered systems are to understand the statistical likelihood and minimize risk as best as possible

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

Only for individual debt, for business debt which is much larger the "ownership" is reversed. If you owe the bank $1000 they control you, if you owe the bank $100M you control them.

Bullshit- they can shut you down at any time and take your c-level executives and stockholders as debt slaves.

And each time the US economy has become stronger because of it

You've got a strange meaning of the word "stronger". I say it's become more dependent- more dysfunctional. More money in an economy does not make it stronger. More self-sufficiency makes an economy stronger.

Only if the chaos can be controlled. If chaos (which most systems of human interaction are) is inevitable, the best engineered systems are to understand the statistical likelihood and minimize risk as best as possible

Human interaction can be controlled and regulated- all you need to do is kill the humans that fail to comply.

Re:Fiat currencies have several problems.

[servognome]

Bullshit- they can shut you down at any time and take your c-level executives and stockholders as debt slaves

That's the beauty of a corporation limited risk. The execs and stockholders at most lose the value of their share in the company (no debt slavery). If the bank decides to call your debt, the liquidation of assets will most likely not cover what is owed, leaving the bank out in the cold.
It therefore is in the interest of the creditor to do what they can to help the debtor when extremely large sums of money are involved.

You've got a strange meaning of the word "stronger". I say it's become more dependent- more dysfunctional. More money in an economy does not make it stronger. More self-sufficiency makes an economy stronger.

Stronger = more efficient, more goods & services, more people serviced. Dependence is not a bad thing, otherwise I wouldn't have a computer, I would be out in the fields 12 hours a day growing food to support me and my family. Economics exists because we are better off trading than trying to be self-sufficient. Yes the system is more complex, but it also provides more.

Human interaction can be controlled and regulated- all you need to do is kill the humans that fail to comply.

The words of an idealistic tyrant - hundreds of millions have died due to such hubris

Re:Fiat currencies have several problems.

[Marxist Hacker 42]

That's the beauty of a corporation limited risk. The execs and stockholders at most lose the value of their share in the company (no debt slavery). If the bank decides to call your debt, the liquidation of assets will most likely not cover what is owed, leaving the bank out in the cold. It therefore is in the interest of the creditor to do what they can to help the debtor when extremely large sums of money are involved.

What's to stop the bank from paying a bunch of lobbyists to change corporation limited risk in the law? Better yet, what's to stop China from simply paying for the "campaign contributions" of every Republican and Democrat in Washington DC to reverse that?

Stronger = more efficient, more goods & services, more people serviced.

In that case, the US is significantly weaker- since all the goods and services are going to the top .1%, leaving the bottom 50% in the dust.

Dependence is not a bad thing, otherwise I wouldn't have a computer, I would be out in the fields 12 hours a day growing food to support me and my family.

Dependence on foreign nations who don't give a shit about you or your family is a bad thing.

Economics exists because we are better off trading than trying to be self-sufficient. Yes the system is more complex, but it also provides more.

Economics is a religion, not a science- it's based on a bunch of unproven beliefs.

The words of an idealistic tyrant - hundreds of millions have died due to such hubris

As well they should for not being loyal.

Re:Fiat currencies have several problems.

[Anonymous Coward]

Unless your explicit goal is destruction, I don't think this is necessary.

Someone who calls himself 'marxist hacker' - what do you think?

Re:Fiat currencies have several problems.

[edittard]

Wealth is never "created" it is only transfered.

I always wondered why we still live in caves and wear animal skins.

Ponzi Scheme

[DingerX]

Heh. Nice site. Huge interest rates paid by "investments", but no information on the website as to where those "investments" are; or, for that matter, who would need a "virtual investor" as opposed to a real one, secured by real contracts. They list on the website a total of ca. $350k USD they claim in assets (or is that just liquidity), with a cap of 1%/day in withdrawals.

So yeah, my money is on Ponzi scheme: these "scams" aren't always done with the intent to defraud; often they're based on the well-meaning ignorance of the scammer.

Personally, I think the whole SL setup is a sort of speculation scam. As an online multiplayer thingy, it obeys some rules: a period of expansion that can last from a few weeks to a few years, followed by general decline as technology eventually outstrips capacity to adapt (at which time you launch v. 2.0). The SL economy is built on expansion: as it gets bigger, prime real estate increases in value. But what happens when competition releases a more mature/interesting product? Better yet, a large chunk of SL's economy involves sex and/or gambling, and these are notoriously vulnerable to regulation.

So, ban gambling, and a portion of the community moves on. Virtual real estate goes back on the market at the same time total subscriptions decline. Those who stored their virtual winnings in "banks" try to withdraw it. Suddenly the scams that were overlooked in the lust for expansion come back and bite 'em in the ass.

What's that tag again?

Wrong Numbers

[Anonymous Coward]

8.5 million is a common misunderstood number when it comes to SL.

8.5 million unique accounts (Players can have multiple accounts)
35 to 45 thousand people logged in to SL at any time
300 to 400k unique account logins per month

I'm in ur 2L...

[Anonymous Coward]

Devaluatin' ur Lindenz

MOD PARENT UP.

[Anonymous Coward]

Best. Slashdot. Comment. Evar.

Some perspective

[amyhughes]

These "banks" and other "economic institutions" are given more legitimacy than they deserve, and their impact is grossly over-stated.

Before casinos were banned the daily SL economy was about US $2 Million per day. That's the total amount of all transactions between residents that Linded Labs (who run Second Life) knows about. It's currently running about US $1.4 Million. That's a big hit, but the difference was people putting money into slot machines. The banning has hurt some people running unregulated gambling scripts, and benefitted the idiots that were feeding them. A wash, AFAIC.

The Ginko thing also only affects a scammer and his victims, and is only US $0.75 Million. Less than a day's economic activity. Those people payed into a ponzi scheme, and like the gamblers, they had no reason to expect a return. Some might say that whatever the "banker" invested in will suffer, but until proven otherwise, his "investments" are probably real-world. That money is already gone from the economy, and it's not an economy-crashing amount even if some of it actually is invested in SL.

The real danger is to the land barons, who continue to buy up all the virtual land The Labs has to offer; much of it up for sale as casinos also sell off their land. Them, and Linden Lab itself, who stand to lose tier payments on land people can't afford to hold. But if a hypothetical sell-off is short-lived and is absorbed by new members and other residents suddenly able to buy cheap land, LL stands to gain as they get to re-sell land that is abandoned; land they already sold once and will get to sell again. The most likely scenario is that land re-sale prices (prices residents pay each other, not The Labs) will go down some, and The Labs will be unaffected. It is probable, in fact, that they want land prices to go down so people will buy more of it. They make much more money on monthly land payments than they do selling land (i.e. server space) to land barons.

Re:Some perspective

[DragonTHC]

just which corner of your ass did you pull these numbers from? The perspective here is dark hairy tunnel vision.

Re:Some perspective

[amyhughes]

These guys have been reporting on SL numbers for months. They get their numbers from these guys, who run the game and provide raw economic numbers in handy spreadsheet format, and in periodic pretty reports.

Enough with the bullshit subscriber numbers

[dircha]

"this could supposedly affect 8.5M players even tho most estimates of actual hard core players in the system are in the 5 to low 6 figure range"

Oh give it the fuck up already. It was just 2 weeks ago we covered this. Second Life does not have 8.5M active subscribers. It does not have 5-6M active subscribers. IT DOESN'T HAVE HALF THAT.

Second Life has 20-30,000 active subscribers, THAT IS ALL.

I'm so goddamn sick of this media blitz on Slashdot by Second Life's lame fanbois. You're damn right this is inflammatory, because I and a good number of the rest of the readers here are sick and tired of seeing these folks abuse Slashdot with their little fake media drama, as often as several times a week, to benefit the bottom line of Linden Labs.

At least give us someway to filter these stories out. People who want to stay abreast of the latest little events in this insignificant virtual "meeting place" can read the fan sites instead; I'm sure they do.

Re:Enough with the bullshit subscriber numbers

[DaleGlass]

Just a little correction: The 20-30K number is the amount of people logged in right now.

Since people generally can't remain awake and logged into SL 24/7, there's got to be more active accounts than that.

Re:Enough with the bullshit subscriber numbers

[emurphy42]

"5 to low 6 figure range" does not mean "5 to 6 million"; it means "10000-99999 (5 figure) to the low end of 100000-999999 (6 figure)". Which, lo and behold, matches right up with your "20 to 30 thousand" (not to mention the previous reply's "actually it's rather more than that").

Re:Enough with the bullshit subscriber numbers

[Anonymous Coward]

I follow Second Life for work (I'm supporting an educational institution that uses Second Life for gaming classes, among other things), so:

According to the last metrics (June 2007) at http://static.secondlife.com/economy/stats_200707. xls
(see the Key Metrics links on the right at http://secondlife.com/whatis/economy_stats.php if you need other formats): in June there were 7,729,655 accounts total, with 5,224,865 individuals behind them. Meaning that there's an average of about 1.3 accounts per individual who signed up (some people have alts).

There were 94607 premium accounts still going in June (people paying a monthly fee on their account).
According to the Economic Stats, 444,595 accounts have been logged in over the past seven days and 1,646,830 people have been logged in over the past 30 days.

I think someone worked the "Countries by hours" stats and found out that even in the areas where people are logged in for the shortest amount of time, they're still averaging 30 minutes a day each.

No, it's not as high as the "Total Resident Number", but those are more significant numbers than concurrency, I think.

Re:Enough with the bullshit subscriber numbers

[thesandtiger]

"5 to low 6 figure range" can mean anything from 10,000 (5 figures) to whatever you want to call the "low" 6 figure range - above 100,000, but less than, let's say, 500,000.

20,000-30,000 would be 5 figures.

And there's a way to filter these stories out. It requires that you use the hardware you've got between your ears, though.

Re:Enough with the bullshit subscriber numbers

[Anonymous Coward]

Second Life has 20-30,000 active subscribers, THAT IS ALL.

No. Given the fact that peak concurrency measures around 45,000 during Europe evening hours and presuming that very few people log in for more than, say, 3 hours per day, the actual number of active residents is much higher than that. Of course not all of the 8+ million subscribers are active, but not even Linden Lab is claiming this. On the other hand, they offer anyone the option to cancel an unused account. If people don't use this option, I guess it is OK to believe that they intend to return.

There is no SL banking system

[amyhughes]

How to create a Self-Fulfilling Prophecy? Simple, just tell everybody that the 2L banking system is about to self destruct horribly.

There is no banking system in SL. The economy revolves around people who use a credit card to buy virtual currency, and people who take receipt of virtual currency and withdraw it to real-worl paypal or by check.

These SL "banks" are minor players compared to the big picture.

This just in, CMDR TACO has lost his penis!

[DragonTHC]

this shit isn't news. I say no more posts about second life.

time to get out the tinfoil hats and the klingon ridges and the MR light sabers, and the bottomless chasm you call your fucking life. /. is news for nerds. It's not news for fucking virgins!

Stop posting this shit.

FFS

[Anonymous Coward]

Could we let SecondLosers drop off Slashdot already?

Old, Old, OLD news

[TaranRampersad]

This is severely old news - over a week. :-) Toss in the fact that the World Stock Exchange was also 'hacked': http://www.your2ndplace.com/node/271 and the connection between Ginko and WSE are joined in the hip: http://www.your2ndplace.com/node/354 But Philip Linden says Ginko is transparent: http://www.your2ndplace.com/node/358

Re:Old, Old, OLD news

[CompMD]

"Severely old news" to me is more like "Dewey defeats Truman."

Re:Old, Old, OLD news

[TaranRampersad]

In Second Life, this story was 'Dewey defeats Truman'.

Fiat.

[C10H14N2]

The fact that some authority asserts that some fancy piece of linen is worth an ounce of gold doesn't change the fact it is inherently worthless. It's still fiat currency unless it is actually made of the commodity in question.

Re:Obl. Simpsons Reference

[coaxial]

Your money's in Joe's imaginary house... Why the hell is my money in your imaginary house Joe? *punch* :)

The Coming Second Life Business Cycle

[Silmaril]

A free-market economics think tank published an interesting article a few days ago on this very subject, called The Coming Second Life Business Cycle.

Second Life's economy could reasonably be compared to that of a small foreign country dependent on tourism. Consumers are inhabitants of the real world who take what are essentially pleasure trips to Second Life. However, it appears very likely that Second Life will experience at least some form of economic recession.

WTF does the US have to do with it?

[Anonymous Coward]

The larger reason is that it's illegal in general to demand payment in some other form of currency in preference to the US dollar.

And WTF does the US have to do with anything here?

And no, I don't give a shit that most of Linden Labs happens to be based in California. Linden Labs is not Second Life. Second Life is a *virtual* world ... it's not based anywhere in the physical universe.

And just in case you don't understand that simple separation, then consider the matter from the point of view of Second Life players ... let's take a subscriber from Iran, as an example. Do you think that they subscribe in order to order to take part in a world located in the US? Think again. And this time engage a brain cell.

Small-minded officials in smalltown USA who have no concept of virtual worlds have placed individuals in Linden Labs (specifically, poor Philip) under threat of termination unless "all this nonsense stops" ... and that's where we are currently. Philip is trying to survive, and I can't blame him for that. But it's totally the pits, and not even Philip wants it to happen. But he would prefer to hold on to his life, if possible.

But don't try to justify it on any other basis. There is none. SL is not the US.

Re:WTF does the US have to do with it?

[Mr. Hankey]

Do you think that they subscribe in order to order to take part in a world located in the US? Think again. And this time engage a brain cell.

Yes. Yes, they do actually. I'm an SL player/"resident", and I realized when I signed up where Linden Labs is located. Second Life may well be a virtual world, but the company and servers that allow the virtual world to exist are still subject to the laws where they are physically located. Were they not headquartered in one of the more open minded areas of the US, who knows what might have happened to them already. It's an interesting ideal to make a virtual world completely separated from RL, but even ignoring moral issues there's a very real economic link between the two. That alone ensures that it will never happen.

Not a bank in the usual sense

[LilGuy]

There is no way to create a bank in SL that would work like a US Bank. Real banks work by loaning out up to 10 dollars for each dollar someone puts in. You can't do that in SL. You can't just create your own Lindens out of thin air like the federal reserve can.

Until the SL owners decide they want to give someone this power, banks will never make it, or will have to charge insane interest rates on loans. (Plus there will always be a chance for a run on the bank)

Re:Not a bank in the usual sense

[emurphy42]

Or will have to back it with something that works like a US bank, loaning up to 10 dollars (which get converted to/from L$) for every dollar's worth of L$ (which get converted to/from dollars) someone puts in. But is anyone smoking enough crack to actually risk doing that?

Tagged 2L owing to excess overload on "SL"

[Anonymous Coward]

If you've been online at all in the last half decade, you'll know at least half a dozen worlds or games of various kinds that abbreviate to "SL".

My first clash was with Anarchy Online's "Shadowlands", but even "Shadowlands" itself was overloaded. As for "SL" ... there's well over a dozen of them!!! Using just two letters is asking for trouble.

So, Second Life became "2L". You can't blame them for trying to avoid the overload insanity.

another perspective

[OneInEveryCrowd]

After following the Ginko story over at Benjamin Duranskes blog I've started to think that Ginko wasn't an intentional fraud and Nicholas Portocarrero actually believed everything he said.

Have you ever watched a young person buy their first cel phone thinking 30 cents a minute it cheap ? Then when the first bill comes due for four or five hundred dollars the person is totally shocked ? Although Nicholas eventually gave his real name the last thing I recall him admitting about his real age was "In my 20s". So here's my speculation:

A 16 or 17 year old Brazilian kid who can't do math sneaked into SL a few years ago, started a bank, and all the avatars fell for it because they really wanted to believe.

Economics 101?

[Chas]

How to bring out hoards of people with only tentative (see teflon gloves) grasps on the concepts of economics in one easy step.

Mention a tech-related financial scandal...

Hyperinflation in Second Life too?

[OnTheWay]

I wonder if a hyperinflationary spiral could ever ignited in Second Life? Not necessarily from a bank run, of course. It certainly would be fascinating to watch it spin up ...

Great. Now I'm Dead.

[Arthur Grumbine]

From laughing so hard. Not actually from the laughing but from the conversation with my boss afterward. Not so much dead because of the conversation with the boss, as because of the fight with my wife after returning home early to let her know I lost my job because of casual internet browsing. Not actually immediately from the fight with my wife as from the knife she jammed through my skull.

Thanks a lot buddy!!

Bartering

[FrameRotBlues]

I agree with that: in a lot of poorer parts of America (and the rest of the world, I suppose), bartering is still a form of payment. My father was a self-employed mechanic, and we lived in a rural area where faming was the name of the game. Depending on the price of milk and other farm commodities, some years the farmers did well, others they didn't. In the lean years, my dad would accept payment for his work in the form of equipment he could use, hogs, hay crops, etc. The farmers were happy to exchange goods for services, because A) it doesn't show up on taxes (which is why the government hates bartering - it's impossible to track and assign a value to), and B) they had an ample supply of something of value.

In this instance, the reason the dollar works is because you can't carry two hogs to a movie theater and expect an exchange for tickets. Nor can you bring 10,000 gallons of milk to a car dealer to exchange for a new car. These places have no use for hogs or milk, and would have to store them for later exchange if they did accept them. It's a huge hassle in these scenarios, which is why the dollar is small, lightweight, and easily exchangeable.

Endless exponential growth is NOT your friend

[mrraven]

Yeah how dare we have a system that "constrains the economy." Inflation or endless exponential growth is your friend, just ask bacteria in a petri dish.

Fractional reserve banking not sustainable mod up

[mrraven]

Finally someone who gets it, fractional reserve banking + interest = either inflation or unsustainable growth by simple laws of mathematics.

Something 1000 years old ....

[jotaeleemeese]

... is archaic: synonym see OLD

What is wrong with a service economy?

[jotaeleemeese]

Services have always been part of the economic activity. At this point in time they are more valuable.

WHen in the future everybody in CHina and India is doing services and there are no countries left wanting to do manufacturing, then manufacturing will come back in vogue and the most flexible countries will enrich from the new trend.

Services is not nothing, their are activities with a real economic value.

Re:What is wrong with a service economy?

[Marxist Hacker 42]

Services have always been part of the economic activity. At this point in time they are more valuable.

If they're more valuable, why do they pay so much less?

WHen in the future everybody in CHina and India is doing services and there are no countries left wanting to do manufacturing, then manufacturing will come back in vogue and the most flexible countries will enrich from the new trend.

In other words, the real choice is to entrust our future to the whims of other countries, or to take control and say "No, we will not allow international trade to harm us". I'm for the second- why are you for the first? Do you like being a slave?

Services is not nothing, their are activities with a real economic value.

Then why do they all pay minimum wage?