Subverted Economies

There's an interesting post on SecondLife economics here.

The short version is: "we've got this big thing rolling where people donate money to a good cause, and we've noticed that now the money is worth more! That's good news, but why did it happen?"

Actually, it's bad news.

The reason that the relative value of the money went from 330 for a buck to 300 for a buck is because people are buying more money. Pretty simple, right? The alternative is that people are selling less money, which is functionally the same thing.

Why are they buying more money - or selling less?

Not to wager my life savings on this, but "because they're donating it to you" seems likely. SL is small enough that a few big charity drives or fundings can put a significant spin on the economy. This is a damn big spin: chances are, there's some other stuff going on, too. And I don't know precisely how large this particular charity drive is: big, but big enough to cause a 10% blip?

Anyhow, the basic truth is: the price of money will go up when a lot of money is going to these "savings accounts", and they aren't spending it.

Of course, then they do spend it, in a lump sum, for real cash that can be put to real use.

Okay, so the price of money rises when you store huge amounts of money in a particular account. Now, what happens when you release huge amounts of money?

This is a toughie...

That's right, the price drops!

Moreover, it drops dramatically more than it rose in the first place, because it came in as a sustained trickle and it's being returned as an instant flood.

So, when the "savings accounts" that are holding up a huge amount of capital decide to release it, you can expect a big-ass devaluation.

"Ohnoes! How can it be solvified?"

If you're a bastard, you can sell it in one lump some at peak market price. But who is going to buy that many lindens? Oh, yeah. Linden Labs' new RMT system. Frankly, if you can convince them to buy such a large number of lindens in a single lump, they deserve to take the damage.

Or you can release the money slowly - say, 10% a month. Or you can convince people to buy your Lindens for more than the going price of market lindens.

The last is pretty classy. First people donate the money. Then you sell it back to them at a mark-up over market price.

Anyhow, we'll see how it all works out.