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SecondLife Bans Unregistered In-World Banks
GuruBuckaroo writes "Virtual Ponzi schemes — pardon, "Banks" — have finally been given the boot by the policymakers at Linden Lab's Second Life. According to the company's latest blog post: 'As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We're implementing this policy after reviewing Resident complaints, banking activities, and the law, and we're doing it to protect our Residents and the integrity of our economy.'"
its a good time to become a loan shark.
Big Tony is already making a killing with his interest rates.
I've heard that if you don't keep up with your repayments, they will break your ARM or hit you so hard it fragments your memory.
liqbase
Greedy bastards....guess who makes the $L now, fool.
#include bier;
News for nerds, stuff that matters.
What is the point of having a Second Life if your stupid First Life keeps intruding?
LL should have had exclusive control over their currency and the exchange thereof to begin with. Allowing other parties to do this for them was an open invitation for them and their users to get shafted.
Morons.
Still waiting on Serviscope_minor to wake up to fucking reality and realize that Jessica Price isn't going to fuck him.
need i say more ^
clinging to relevance like a life raft
The thing that I have trouble conceiving of is how people could trust these virtual banks/investment schemes in the first place, especially since there's real money involved. I find Second Life interesting, but like the internet, it's still a bit of the wild west. I barely trust my real world bank to do the right thing with my money, to say nothing of trusting some virtual bank.
To the making of books there is no end, so let's get started
The "virtual" in virtual worlds means it isn't real. Once you leave the bounds of the physical world here on earth, you're in uncharted waters. After that, you might as well be living in the old west where the only justice you get is the justice you take.
The crooks may still wear black, but they pack all new weapons now.
8==8 Bones 8==8
I have never, EVER, met a person who 'plays' this game, I am probably the only one in my circle who has even heard of it, and I only hear about it here on slashdot.
Of course what really just happened is that they have triggered a massive run on the banks now. Is it better to wait for all the different banks to fail or ban them causing everyone to withdraw their money at once? You are giong to see every bank going the way of Ginko in the very near future now. (even that tiny minority that wasnt offering ponzi scheme style interest rates)
... for those that failed in the first one.
I must be getting old, I'm sounding like the people I despised when I was younger.
Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
what the hell the purpose of second life is, and why the hell I should care?
it's just another MMORPG but without any of the redeeming features of evercrack or WOW (i.e. dressing like a mideval elf and killing trolls)
maybe I'm just dumb, but really, what is the purpose?
The difference between Theory and Practice is greater in Practice than in Theory.
In the US, the Federal Reserve has the right to create money out of thin air. They don't want anyone encroaching on that power. In SL, Linden has the power. They should be cracking down. Both worlds need some hard currency in my opinion.
This whole think makes me wonder if criminals are using these places to launder money?
I'm just as geeky as the next guy, and all for varied forms of entertainment, but SL just strikes me as an incredibly pointless waste of time. Kind of like posting to slashdot as an AC.
Being a bank in Second Life isn't very attractive to real banks, because they can't create money in Second Life, like they can in the real world.
Anybody that converts real world assets to virtual ones deserves what they get. Seriously, what's on your mind when you convert your hard earned cold cash into bits in some virtual world ?
Don't you have a better way of spending your money ? Most fads on the internet I can sort of understand what they're about and what their 'pull' is but second life is one step too many for me to follow.
MP3 Search Engine
When borrowing we are really making a commitment to produce goods or services in the future. Interest can be looked at as a tax on participating in the economic system or what they charge us (at least at the first tier) for the use of the monetary system they maintain.
Banks do several things. Track transactions, create GL entries to produce new money out of nothing, attempt to recover bad debt, asses and evaluate risk.
For doing these few things they collectively generated over, the last 3 years over a trillion dollars in NET profit.
The current cost or charge for contributing to the economic system in the US is about 6% of each dollar. Obviously the real cost is less than half a percent thanks to technology.
It is time for the public to own the monetary system and pay third parties to provide the above services taking advantage of technology.
Obviously we don't really need bank buildings anymore, just some data centers, and home PC's to support the whole system.
Thanks to the Internet and Technology the worlds Monetary and Financial systems are outdated and no longer needed so we don't need to pay 6% of the wealth we generate to the bankers.
More like .5% should be enough to support our Monetary system.
"an infinite player that has lost his finite mind" ~Infinite Play the Movie (it blends with reality)
Last year, 5 banks opened up in Entropia Universe, each with a minimum of $100,000 capital for making loans. You can check your in-game items into a safety deposit box at such a cyber-bank, and receive a credit line (in real dollars), using the in-game item as collateral.
Each bank is sanctioned by MindArk (the software company that made the game), and is allowed to set any policies that they want regarding interest rates, etc. MindArk auctioned off the 5 licenses for these banks for a total of $404,000 in May of last year.
I enjoy mixing my gaming life with my real life, but this has gone a little too far for even me.
Free unix account: freeshell.org
Now it's the banks.
What good is 2L if you can't virtually explore the things there that aren't possible, safe, legal, or some combination of all of these virtually? I don't need every part of my life to have training wheels.
So how long before virtual sex entirely is gone too?
Followed by avatars who are too sexy, or provacative.
2L was a place were you could learn life lessons by being stupid. Now it seems intending to become one of the more restrictive Middle East countries instead.
"It's the height of ridiculousness to say for those 9 lines you get hundreds of millions."
Does this mean I can get a new simulated job as a simulated chartered accountant or simulated banking regulator! Oh goody, where do I sign up?
Brett
It's time to update the world's financial and monetary systems to reflect the advanced and new capabilities of technology. No longer should a small private group charge excessive fees for the use of their monetary system, subject to being manipulated to artificially extract wealth by those not actually making a value contribution to the other participants. We should also allow competition in providing monetary system services it is currently a monopoly.
"an infinite player that has lost his finite mind" ~Infinite Play the Movie (it blends with reality)
That's more like a law of government than like a law of nature.
We're seeing the exact process by which people create governments to protect our rights. Since SL already had what was equivalent to tribal and voluntary governments, we are seeing something much like the process SL'ers learned about in history.
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make install -not war
I agree with everything you say, and further, it seems to be a place inhabited by people with bizarre and even illegal sexual tastes. Somehow, this is a substitute for the activity (which I suppose is a good thing, ultimately).
But between the way the owner and his wife run the thing, the people who dress up their avatar in animal clothes, and the illegal sexual tastes, it gives me the creeps.
Really. Stay far far away.
While I'm sure it's the most expedient solution, I don't understand why a virtual bank should be required to get government certification or whatever in order to operate. It's not like, say, an American bank is required to be regulated by the Chinese government in order to deal in yuan.
What this really is is a failure by Linden Labs, in general, to regulate their own world. Or perhaps more to the point, in-game regulation systems to be effective. LL is trying to create a virtual world that works a lot like the real world; well, part of the real world is regulation and law enforcement. All they're doing is foisting that job off on the real world, and basically punting on the whole issue.
This makes the Second Life economy less of its own economy, and more some sort of glorified shopping mall/theme park. Which may be the point, but it's certainly less than its billing.
I'd like to secure a loan for $5000, in exchange I'll put up my Ashbringer as collateral. I "promise" to pay you back.
It has kind of an interesting 3D design system, which makes pretty much any 3D art project basically a puzzle: How can you make a good facsimile of a 3D object using as few "basic design units" as possible, combined with texturing, and scripting.
But since that's really the only fun part, and they give that away for free, and you have to do it in a shared space where people can just pop in and annoy you from time to time.. (you can pay extra to avoid the communal area, but you only reduce the annoyance, and it looks like you actually get less modeling capabilities.)
Every 8 months or so, I log in to see if it still sucks (because it's free and after 8 months I forget how awful it is, and there's usually a slashdot article about how great supposedly supposed to be). Last time, it was *filled* with floating, talking phalluses that lock on and follow people.
Ripple
This video explains all.
The enemies of Democracy are
Giving away my own punchline here, but hey, you still gotta admit it's something you can't do in WoW.
The enemies of Democracy are
Next thing you know, they'll be asking your place and nature of employment when opening financial accounts, trying to monitor all communications, and placing incompetent Gestapo in the airports.
Slashdot: Playing Favorites Since 1997
People tend to laugh at Virtual "Assets" because they keep comparing it to physical items.
OF COURSE Virtual assets are not tangible real items. What they represent is effort/service on the part of somebody. When you "buy" something in Second life you are not buying a Virtual House/dress/etc, you are paying for the service/labor involved in the creation of said digital content. Looking at it in that way does not make it so cooky.
One could say when you "buy" an ebook you are not actually buying a book, but people don't lambast others as nutz for buying electronic print.
Second Life is becoming more and more like the real world.
Next we'll have inflation destroying the value of the L$, and Rosedale will help out by dropping L$ from helicopters.
As for it being a currency....can I trade it? Needless to say I can't see it on my interbank ECN, but is it traded over the counter somewhere except by game players? Also, I've heard these crazy stories about people putting thousands of dollars into these games to "flip" virtual property, run virtual businesses, etc. Are Linden Labs regulated? What is to stop them changing the USD/LDR rate to suit themselves? Does it float freely? Are there any stipulations in the contract about this?
Serious questions - people seem to be "investing" serious money in Second Life.
In all cases, charging interest on money or property lended causes problems. Many economists attribute the existence of interest as the sole cause of inflation, and inflation causes all kinds of other issues. It's a slippery slope to financial ruin for an entire economy, and SecondLife was headed that way. Glad to see them do something about it before many more people lost their money.
I'm not a very religious person, but even the bible states that charging interest is akin to theft. It's simply making money you didn't make, which just isn't good.
CCP do tolerate most scams in their game, and they expicitly warn people against being too trusting. Even if the perpetrator is known, the GMs will usually not refund your money - it's just tough luck ;-)
I think they might make an exception if the scamming was done by exploiting bugs in the game mechanics. But if it is simply misplaced trust, you get no compensation at all.
Even so, the economy in EVE is still working.
C - the footgun of programming languages
Second Life made a prominante apperance on the Television show "The Office". Have you ever heard of that show or are you that out of touch?
And you do it with fake money.
.999 fine silver officially by the government, with a gold standard following.
In the olden days "dollar bills" wire actually silver or gold certificates. You could trade these paper certificates for the actual gold or silver. Prior to this, you'd carry it in a coin purse. But the paper money while more subject to wear, was lighter and literally more flexible and therefore comfortable. A US Dollar was based off the Spanish dollar and was settled on 371.25 grains of
This limited inflation (the only way to deflate the currency was to send bankers to the hills to mine metals) and was real value.
Then in 1913 two things happened: we got the Federal Reserve and the 16th amendment. These two institutions, both once non-existent, rule the country today. With the creation of the FR the US borrowed money from the FR ]]at interest[[ setting up a positive feedback loop of inflation. In order to do this they also had to decouple the money from the metal backing, which was completed in 197[2?] under Richard Nixon. If you want to see real inflation, it is measured in the M3 statistic, which the Fed stopped publishing recently. But you can see it here Instead of talking inflation, the Fed tries to talk CPI - which is an aggregate from several industries. Notably absent is the mortgage market, which ask anyone, its costs have doubled in the the past 5 years. But the CPI leaves this out, and only includes rents, which have stayed disproportionately low because of all the house seekers.
Today the paper you move about is as valuable as those bits in the computer. If the word "certificate" appeared on them it would be completely a different situation. You could go to the bank and get metal, whose value wouldn't ever go down. But now, you can't expect to leave $30,000 in the bank and have the same buying power 10 years later. Over the last 90 years, the dollar has fallen to just $0.04 of its original value, as valued by the silver market.
But getting back on topic - any kind of calamity that shakes the confidence of Americans will affect the buying power of the dollar. Not a new vein of gold, not a run on banks, not a stock market crash. The only absolute value is cold hard cash. And by cold and hard I mean a metal.
--Epilogue--
I often wonder what all this means int he grand scheme. If you have money, this is an issue. If you have debt, it is actually a good thing because debts are paid off with future, depreciated money, and they take that money at face value. (Which an old bill is rarely worth.) The key here is to have one foot in both areas: pay off debts with inflating currency and have your investments in metals-backed currency.
There has been a movement to inflation-proof currency, known as the Liberty dollar. These were negotiable certificates which actually were redeemable for metal. The Federal Reserve shut it down and seized all the silver, because this, while completely legal, are the one thing a person can do to retain control and live outside the system. If it ever got popular (and I believe it would, particularly in times of inflation) the Federal Reserve would have competition that couldn't be influenced by it. The important thing to note is that it would be no different of a situation than America, pre-1913.
Finally, note that the Federal Reserve is not Federal (it is private) nor is it a Reserve (it holds nothing - the gold it once held is unaccounted for.) The only worse-named entity is Social Security.
Slashdot's rate-of-post filter: Preventing you from posting too many great ideas at once.
stop playing games and get a job
Probably because Linden Dollars can be exchanged for real dollars and vice versa. The bank might be "virtual" but the collateral you stick into them isn't whether its called Linden dollars, love teddies or anything else with an intrinsic real world value. I expect virtually all of the banks in SL are ponzis, pyramid schemes or some other similar scam. So SL have decided to regulate by clamping down on the entire industry.
It makes sense and it's surprising they didn't do it sooner. Its even possible that they might even attract a REAL bank in now. Personally I think this is just the opening salvo. The scammers will try to skirt these restrictions in other ways. For example, by replacing cash machines with vending machines, machines that buy back whatever they vend and so forth. Or they'll become more inventive and won't call themselves banks anymore and will pretend to be investment clubs, gifting circles and so forth.
Linden is going to have a major headache stopping the scammers. The easiest way would be to stop letting people exchange in-game money for real-world money. I don't see that happening though.
It's the same reason a lot of people used to play MOO's and MUSH's. Perhaps it's just the fun of being able to create things and share them with a community. Personally, I never got into that sort of thing. I played MUDs a lot and as a result I'm an avid World of Warcraft player but I did know a lot of people who played MOO's and MUSH's.
We'll make great pets
I've read the stories and I still say "Get a Life" with no literal intent here on LL. This isn't technology, this is Zork on 'roids making it all a game. If you look at the idiots who lose money in this virtual world, would you want them as an in-law? Crap, if you're stupid enough to invest in a virtual world with Linden Dollars then you deserve to get ripped off, raped and drug over and sharp pointy objects (virtually of course).
I say to all the Second Lifers: Go outside, take a walk and get off the computer! Also stop dating your cousins!
Harrison's Postulate - "For every action there is an equal and opposite criticism"
Could someone please explain WHY Slashdot continues to use such an
OBVIOUSLY FUCKED UP SYSTEM OF MODERATION
please? It's gotten to the point where I consider "Trolls" and "Flamebait" to be the truly insightful thoughts and everything else is the real troll or off topic shit.
The parent post is obviously NOT flamebait, so why is it modded that way? YOU FUCKING RETARDS.
Knowledge is key.
.
A fiat currency with an actual fixed supply, if that weren't a contradiction in terms, would be the only type of currency intrinsically not subject to loss in value. In fact, assuming increasing productivity, its value could only go up. You can argue about whether this is a good thing or not (it still gives the wealthy a big advantage, but I don't see an ethical way out of that for any reasonable definition of the word "wealthy").
Using anything as money is subject to discovery or creation of more of it. Trying to make that hard is the best that we can do... which is why gold is a *decent* form of fiat currency. The biggest problem with it is that it's also a massively useful industrial resource, and there's a lot more of it that remains undiscovered than there is currently in circulation.
Thanks for the info, that looks promising.
"an infinite player that has lost his finite mind" ~Infinite Play the Movie (it blends with reality)
Can't be bothered to go into a long discussion of what when where and how but are there any other financial + technological slashdotians out there who would be interested in writing some software to create a futures market for these (i.e. Wow / SL / etc etc ) virtual worlds?
Um, what?
Currency and gold are traded for each other; the gold standard fixes the exchange rate between the two of them, both ways. If we fix the dollar at 1/1,000oz gold, we also thereby fix the price of gold at $1,000/oz. The two statements are equivalent.
The thing that you're missing is that fixing the exchange rate between currency and gold does nothing to fix the value of either. Why? Because the value of money consists in its ability to be traded for goods and services, and there is no fixed rate of exchange between gold and actual goods and services.
So the government, allegedly, inflates the money supply to buy goods and services for below what they should have paid for them, as an alternative to financing said goods and services through taxation. The problem with this argument is that the gold standard doesn't prevent the government from playing dirty tricks either. It can change the price of gold, it can reduce its gold reserve requirements, etc.
Where to even begin?
Do you expect to get a return on capital that you loan/invest in an entity or to another individual? Would you like to know how a return on capital is derived? OK: (b-t-w "interest and dividends" can often be very similar in practicality for example cumulative preferred stock dividends act more like "interest" than a common stock dividend - it's more of a gradient and just calling something a "dividend" does not create the little fairy world you dream of)
1. A real rate of return for forgoing use of cash
2. liquidity premium depending on accessibility of cash (similar to #1 but different)
3. Expected inflation
4. risk compensation for Unexpected inflation (depending on negative exposure to unexpected inflation)
5. Credit risk compensation
Thus if you want money from me, a bank or anyone else who happens to have money, you have to compensate the bank or I or whatever capital market depending on the magnitude of these different risks.
Now an entity or an individual have a variety of options when looking to raise capital. A large enough business can go directly to the bond market, issue stock or go to bank.
Now if you think banks can magically create money and are not participating in a world where the above risk factors are real, my question is: why don't banks create the magical money you think they are creating and undercut the bond market, the stock market? Why do those other markets even exist?
Hey if you think banks are making excess profits invest in bank stocks.
that's all the time we have today.
ac
In Second Life, Grey Goo shoot you!
Second Life currency has an official exchange rate. It is directly convertible to real currency. If I run a bank in SL, there's a very real argument that the banking regulations apply to me (or, if they don't, that they should).
One -- you might object 'it's not real currency' -- the response to this is simple: define currency. What makes money valuable to anyone? Why can't I create Dimms, and start using them as if they were legal tender? Companies used to do that, they'd pay employees in company money, run company stores, the works. As I understand it, the answer is that money has value because a large number of people agree that it does**. So the Linden Labs currency can be fixed against real money by fiat, which goes a long way towards making it real money.
Two -- It has an official exchange rate; it can be converted to and from real money. If SL banks don't have to follow banking rules because SL currency isn't real, how long until big-name banks try to pull a fast one? Your bank account isn't actual money, no, you're not depositing anything. You don't have an account balance, no no no -- instead you're now the proud owner of Bank of Ameribucks! Oh, look, all of a sudden we're not "banks" anymore so we don't have to follow all those pesky rules. Sure, they happen to convert to dollars at a fixed rate, but they're not "currency" so it's perfectly fine!
If a loophole like point 2) existed, someone would try to take advantage of it; therefore I'm quite sure that banking regulations apply to anyone who deals in anything that even looks like currency. IANAL, but I'd be willing to bet that the banking regulations as written technically cover entities storing accounts in Second Life dollars in most places; nobody cared before because -- well, actually, the Second Lifers cared, but nobody had ever caused a problem before, so it was ignored.
** -- Yes, I know, horrible oversimplification.
i'm beginning to think that you're taking the piss, but i'll bite again.
first. there are securities http://en.wikipedia.org/wiki/Inflation-indexed_bond that 100% protect from inflation so the mysterious asset thief ferries are out of job I guess.
second. the creation of money is constrained to the growth of the economy and rather than getting into the detail of our currency system in the US or elsewhere, i'd contend that money, once in the secondary market has value, and to defer use of that money, and risk losing requires a return in the market.
pray tell the financial "academics" you are studying.
Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.
I tend to fall in with the Catholic view of things (unsuprising, being Catholic): usury is what happens to "interest" after it reaches the point where it could no longer be called just. Catholic thought recognizes that it is possible to lend, and to profit by lending, in a just manner, because there are times when it is advantageous to be a borrower. Thus I really don't worry much about most mortgages and think that payday loan places are, ahem, very close to the scum of the earth.
Here's the deal: in the real world, it takes money to make money. Unless you are already blessed by having wealthy parents, you start with no money or significant property. You have essentially three options to get a career which will allow you to lead a middle-class or better existence: get a college degree, open a business, or be one of the extraordinarily lucky souls in a profession based on natural talent which happens to pay well (football star, etc). Option #3 isn't viable for most people, and option #1 and #2 cost tens of thousands of dollars.
Now, you could try to get your way to the $20,000 worth of seed capital you'd need to get a four year education at a state school by working long nights at low-skilled labor. And, hey, people have done that and if you choose to do it more power to you. However, that throws away years of your life which you will never get back. You could have money donated to you by someone and, hey, if that is an option more power to both of you. Or you could take a loan for the money.
Work with me on the math here: as unskilled labor, the value of your time is approximately $20,000 a year. Let's say you're dead set that you want to major in Women's Studies and graduate with no job skills -- this will still increase your salary to $30,000 a year, give or take, just for having the BA credential. Now, you can either work 2 years at McDonalds to get the $20,000 saved up for college, or you can talk to the bank (realistically, the financial aid office, but it wouldn't change the analysis if you were getting private loans, just bump up the interest).
What does the bank give you in return for your interest payments over the next years? *Two years of your life back*. Instead of going through indentured servitude @ 20k to pay for college, you get to graduate two years earlier and immediately start earning a $10,000 a year premium. Next to that, the ~$3,000 you will pay on interest in your first year (assumption is 15% interest, which is on the high end of private lenders for educational loans) is peanuts. The amount of interest you pay every year decreases, and the value of your degree compounds every year with salary raises. You'd be a fool not to sign up for this.
Education is my canonical example of something you should really be happy to be pay interest for. Other income producing assets, like a building or non-residential real estate, are good choices. After that, the case becomes marginally less clear, and it comes down to how much you want that object of your desires *today*. For example, many men in my situation (mid-twenties, stable professional income, modest savings) are thinking of marrying a bonny lass and buying a house within the next 5 years. That is not a realistic goal without borrowing money to do so. I could do things the Japanese way and save money from my paycheck for the next ~20 years, then shock the bejeesus out of some agent and buy a house in cash, right about when my kids were getting into college. OR, I could sign a home loan with my wife, and have my kids grow up in a house as opposed to a tiny shoebox apartment. There might very well be some value to that that I am willing to pay for. And clearly its right to pay for putting a roof over my childrens' heads: I would do it to my landlord, why not do it to the bank that is fronting me several hundred thousand dollars so that we can live in a slightly better manner.
Help poke pirates in the eyepatch, arr.
In some cases, charging interest (usually at high or usurious rates) on money or property lended causes problems. Most economists attribute the shift from credit being available on only usuorious terms of interest to the modern banking system first established in Holland in the 15th Century as the cause of the shift from wildly fluctuating prices from season to season (up and down) to gradual and persistent inflation. Moderate inflation produces the incentive to invest in productive enterprises, rather than hoarding wealth, which was one necessary step in the economic revolution which brought about the industrial and agricultural revolutions.
An economy based on fraud and usury is on a slippery slope to financial ruin for that entire economy, and SecondLife was headed that way, as Albania did with the collapse of fraudulent schemes in the early nineties in the real world.
There is an interesting philospophical debate on whether investing to recover the time cost of money is prohibited by Judaeo-Christian religions or whether the ban is on usury as we would today understand it.
Then there's the long term devaluation of the currency, essentially the theft of wealth from those who can least afford it. A dollar is now worth a tiny fraction of it's original value, something like 5%. Even short term requirements for particular requirements for a particular commodity don't even come close to that effect.
Deleted
Introduction of regulation is the beginning of the end for entrepreneurs and free markets. It will only be a matter of time before all SL wealth is consolidated in the hands of the few, to the detriment of the many. If these new banks are doing a good job, they will flourish. If not, they will meet their demise. If sanctioned banks are such an ideal prospect, they ought to be able to eliminate these upstarts naturally. If the sanctioning process puts them at a competitive disadvantage, a flaw in that system will have been exposed. The only real reason to ban this activity is if the free market is a Very Bad Thing. In which case, institute tight controls. However, I thought the best thing about SL was supposed to be the freedom to do anything. By contrast, most virtual experiences are very limited, controlled and big-brotherly. This path of action would appear to be a devolution for SL. (cue Whip It)
As opposed to using it for jewelery and circuitry. I miss those days when a rise in demand for jewelery would cause your economy to slow down because people would rather save their now-appreciating gold than spend it today. I miss those days when, during hard times, the only way for government to stimulate the economy was to increase government spending, leading to an increase in interest rates at a time when it would hurt most, to say nothing about the issues of gratuitous government spending that arise.
Having fake money gives governments the useful tool of monetary policy, which lets governments exploit inertia in the economy to increase production, without having to spend (as much of) your hard-earned taxes. It also has the nice effect of making money *only* useful for measuring value, leaving other precious materials to be put to better uses than padding bank accounts.
You'd have to be stupid to put $30,000 in a bank account that doesn't pay interest. Sure, in 10 years time the value of a single $1 may be much reduced, but if you put your money in a variable-interest account (or a fixed-interest one if you want to gamble with your savings), you'll be able to buy (slightly) more with the $30,000 + interest than you could with the original $30,000. Contrast that with putting 1 metric ton away in 1910. According to the US Geological Survey[1], 1T of gold in 1910 gave you as much buying power as $10,600,000 would in 1998. 10 years later, that same 1T you put away would give you almost half the buying power ($5,370,000 in 1998 dollars). Pick another 10-year span and you might get the opposite effect. The point is, even putting away precious metals won't guarantee you the same buying power 10 years later. With real currency, you're subjecting your savings to the market.
This all shows there is no absolute measure of value. The value of something depends on what you can do with it, which changes as society and technology changes. At least with fake money, you're not tying measurement of value with the results of market forces for the commodity backing the currency.
Lastly, inflation doesn't make having debts any more attractive since you'll have to pay interest in the future anyway. Any serious lender will factor inflation into the interest rate. Inflation just makes things more uncertain, since a drop in the inflation rate means you'll have to give up more restaurant dinners to meet your interest payments.
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[1] http://minerals.usgs.gov/ds/2005/140/
Two separate calls for a return to the gold standard in one day?! Stupid must be more popular than I'd thought.
Hey, are you a Ron Paul supporter by any chance?
Your logic is flawed in so many ways.
First, interst on bank accounts never out paces inflation by very much. The banks just can't afford it. They exist on the cash flow between loan interest (income) and paying interest (outgo). The inflation rate will be added to interest income and will be leveraged against the paying interest. If the paying interest is less than inflation, the bank is making money.
Value is an always will be speculative. The problem with having a fiat currency (with no metals backing) is the value is completely subjective. At least with metals, there is an international market value, set by the market. With fiat currency the value of the money is up to those who control it. In the U.S. it is the Federal Reserve (FR), which as I pointed out is not part of the government. All the economic woes of this country are controlled by 12 or so private banks. Each bank can have appreciable effect when acting alone, but are devastating when in working in concert. The government has NO control over the FR, though it can apply some pressure. Obviously any entity created by an act of congress can be destroyed by an act of congress. The problem is once created it is hard to argue for is dissolve.
The choice is simple: let bankers who never have your best interest in mind control the economy, or let free markets do it where you and everyone else are an active participants. When bankers control your money, it falls to 4% of what it was in 100 years. I don't see gold falling to 4%... ever.
Finally your last statement... Well it is never profitable to take out a loan unless it is applied in a way that the return out-paces the interest on it. This is rarely true for anything, but recently there have been properties who came close to breaking even. Houses purchased in the late 90s/early 2000s have tripled in some markets. This approaches the cost of the loan in totality in today's dollars. You essentially live in a house for free. Sure you pay the bank every month, the the appreciation is equal to what you pay. This of course won't be sustained, but it is interesting to note that it can happen.
Gold in 1913 was $20.67 an oz, today that number is $438.82 after correcting for inflation. Right now the market is at $894.90, meaning that gold has doubled in _real_ value over the last 94 years. The problem with the way you measured things above, is that you measured it through inflation, so you see a compounded effect of national currency fluctuations and market fluctuations. You should remember that golds is a global market and that other national currencies may not have seen the same valuations despite being in the same market.
Slashdot's rate-of-post filter: Preventing you from posting too many great ideas at once.
When they banned gambling, I quit playing, as Is aw that as the only interesting thing. however, when that happened, the economy slowed down. I forsee SL becoming more and more restrictive.
I must profess not to know the situation in the US, but in Australia it is possible to outpace inflation by depositing money in a bank. Just taking a quick look at what might be a typical savings account[1] from the Commonwealth Bank of Australia (a major bank here in Australia), you can earn an annual effective interest rate of 3.04% p.a. as long as you make one deposit each month and no withdrawals (a reasonable practice for a savings account). If I were to put my money in an ING Term Deposit for 1 year, I could earn 7.5% p.a.[3] By comparison, the current CPI inflation rate according to the Reserve Bank of Australia[2] is 1.9% p.a. and has not gone above 4% for the last 3 years.
It is true that money under the mattress is a terrible investment strategy, as money is the only financial instrument that depreciates over time. A good way to save your money would be to put it into something of actual value, be it commodities like gold, or an interest-bearing bank account (which has actual value because the bank can use your money to finance profitable ventures, giving real value back). But that does not change the fact that money is a great medium for the measure and transfer of value across space (not time).
Having something used only for measuring value, and nothing else, allows us to decouple the measure of value from unrelated market forces which may be operating on a commodity currency. The money value of a meat pie today is unrelated to the supply and demand of gold, or any other metal you might use to back a currency. I would consider that a good thing. Fiat currency also has a nice side-effect of letting governments exploit market inefficiencies to stimulate the economy during hard times.
Money does not store value, it only measures it.
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[1] http://www.commbank.com.au/personal/accounts/awardsaver/rates-fees/default.aspx
[2] http://www.rba.gov.au/
[3] http://ingdirect.com.au/savings/our_products/term_deposits.htm