Jun 30th, 04:47 system announcement
by IntLibber Brautigan

RL and SL Economic News and Outlook

While I am sure everyone is aware of the ongoing subprime crisis in the US, which seems to be working its way through the system, there was good economic news in May, new home sales were up 2%. Indications are that sales prices are down 15% over a year ago in order to achieve those sales rates. Federal Reserve has lowered the discount rate to 2%, and the prime rate is 5.5%. Average mortgage fixed rates are about 6.5%.

Bear Stearns, a major investor and underwriter of mortgage backed securities, was bailed out by a buyout by JP Morgan in financing guaranteed by the US Govt. Other investment houses less badly hit have undergone significant restructuring, some have been able to raise new capital to make up for losses.

In good news, VISA, the international credit card company, has gone public in the largest IPO in history. This has enabled its previously private stockholders (primarily major banks like JP Morgan among others who were suffering sub-prime woes) to make up for subprime losses by sales of VISA stock, and is a major factor in alleviating what would be a much worse economic situation in the US otherwise. VISA shares were largely bought up by Chinese interests and institutional investors.

The main problem economically today remains the price of oil. Spot market prices have gone over 140 USD per bbl recently, and some have projected hitting 170 before receding later this year. Saudi Arabia has said they will boost production significantly, however the oil producing states insist that they are not making more a the oil well than before, all of the increase in prices is on the speculative markets, generally due to China reducing the amount of spot oil available by signing agreements to lock prices and supply in fixed price contracts. The lack of oil available on the spot market is primarily what is feeding the spot market price frenzy.

It is also likely that oil producing nations are using their earnings to manipulate prices on spot markets as a tool of foreign policy against western nations involved in Iraq, or seeking to unseat the Republican Party from the white house by ruining the US economy prior to the election. Until the US adopts an energy policy that establishes greater energy independence, this will remain a threat.

What does this mean for those of us in SL? Well its a double edged sword, really. Firstly, high gas prices reduce the disposable incomes of people across the country, leaving them less funds to 'play' in virtual worlds. On the other hand, there is high potential for promoting telecommuting/teleconferencing services to corporate clients who wish to cut travel expenses that are skyrocketing due to fuel prices, and see the light that telecommuting employees cost less than those who physically show up at the office.

The stimulus checks being mailed out are likely improving peoples disposable incomes, however that is a short term boost and not sustainable. Without significant and sustainable changes in oil prices, from increases in production or decreases in consumption ( and consumption has been dropping), we remain headed into continued economic difficulties.

Small time business 'hobbyists' in SL will be forced out of their respective markets by the very fact that they do not operate on a sustainable business basis, leaving the market to those businesses who have focused on operating as businesses. Whether those newly unemployed recently or in the near future spend their unemployment checks on SL remains to be seen.

Economic growth will remain in SL overall, however the average economic activity of individual avatars will decrease. For those seeking to research the potential effects of economic globalization, the means by which the SL economy has shifted from a get rich bubble to a low growth deflationary scenario flooded by new users with no or less disposable income provides an excellent model to study.