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Before beginning I should note two things. First, I am not posting this to ridicule anyone who has gone before me on this thread. For the most part, I think that people's arguments have been pretty good, although as I am going to argue below, contradicted by what we actually observe. Second, my specialty field is not pure economics, but rather politics. As such, some of what I am going to say below may not be sound economic theory (but I think my arguments are just as sound as the others made in this thread). Okay, now that my a** is covered:

1) The Sky is Falling: I think my biggest problem with this thread so far is Trystan's argument of the following form: a series of events is occuring, these events will inevitably cause x. This is what is known as a slippery slope. Make no mistake, unless Action Is Taken (TM) the economy will crash! The problem with the slippery slope is that the argument assumes a certain inevitability that rarely holds in the real world. In order to make a convincing slippery slope argument, one has to show not only that a certain sequence of evens is plausible (which Trystan does) and that it the inevitability behind it actually holds.

But I do not think Trystan does this. Personally, I'm not sure how this argument (inflation leads to crash) is supposed to work even if I pretend that there is inevitability in the first place. When does the crash occur? In fact, what do you even mean by crash? Is it that all of the sudden gold becomes worthless and items simply can not be purchased or is it that the userbase up and leaves? More importantly, though, I am curious about how you envision this occurring. Is it sudden and unpredictable? Why does it occur? I am unsure of how rising prices is really going to cause people to quit (I assume this is the argument as do many of the others who have responded). In order to understand why this is such a problem and evaluate your arguments for a roll back, I need you to specify why, when, how, etc. you expect the process is going to occur?

The second note I would like to make in this vein is that the idea of a rollback as a solution to the problem is impractical. Fundamentally, Gaia, like all economies, functions on a certain amount of trust. This became even more true once the donation letter came into being and it became possible to pay Gaia for items. We trust that when we pay the admins real money for pixels, those pixels will have certain features. We will get the pixels we pay for, those pixels will not suddenly be taken away from us, and we will be able to transfer these pixels to other users for another set of pixels. Taking away any of these fundamental rights violates the trust and makes it harder for us to trust the admins in the future. Especially with real money. As I explore in 2) below, this spells bad times for becky for Gaia in its corporate form.

But what does a rollback do? It essentially invalidates all of the previous investments made. Personally, I have sunk $50 and hours of work into this site just in the last 3 weeks. If Gaia rolled back, I would lose all of that time, all of that effort, and, most importantly, all of that money. I might not leave Gaia, but it would be irrational of me ever to contribute money again. Certainly, it would be irrational to spend as much time as I have spent on Gaia recently after a future roll back.

2) Render unto Ceasar: So why is me spending less money and less time bad? Assuming that I am the average Gaia user (which I assure you I am not), at the minimum these conditions mean that I generate less revenue for Gaia Corp. Most of us rarely think about the business end of this site, but running the server farm that keeps the main site, the PM system, the forums, the MP, and all of the various games going is not cheap. I believe Lanzer noted last year that they were running almost 100 servers just to keep the site stable at the peak usage of 120K users. If I spend less money on the site and hang around it less often, it becomes harder and harder for Gaia to run its servers. This is, by the way, without also considering that Gaia probably has at least 30-40 full time staffers (programmers, artists, Lanzer, etc.) that need to be paid at least subsistence wages (From what I understand of living conditions in CA, this probably means a minimum of 30k a year. Probably more since most of the Gaia employees would like to have decent homes and meals) and office space.

This is also the flaw with removing the cash shop. According to Lanzer, even with the advertising Gaia has yet to turn a profit. While this is true of many start ups, Gaia has been around for around 5 years. I would imagine that the investors and creditors are going to start clamoring for profits soon, if they haven't already. Put in these terms, the massive influx of corporate sponsorship and the Cash Shop become necessary tools for Gaia's existence. Take away either one, or diminish consumer confidence (the trust we have in Gaia) too much and Gaia ends up having a hard time paying the bills.

3) Crime Causes Heat? (a brief note on causation): The final note I'd like to make is about causation. Trystan and others on this thread assume that the big problem in the Gaian economy has come from the massive influx of Cash Shop items released in the last few weeks. While this has certainly influenced some price hikes, it has not influenced all of them (and in fact the OMFG box lowered the price of some items drastically). I do not have direct evidence to back this up (but I am trying to get it), but I suspect that the price hike in '03s and '04s has two main causes. The first is the wave of bans Trystan mentioned.

The second, however, has to do with deliberate market manipulation. I'm sure that many of you noted the 2 million gold price hike in Angelic and Nightmare Scarves recently. This is actually due to the manipulations of one user, iDigger. From what I have gathered, he decided to spend something like $5000 on MC's either this month or last and used the resulting profits (Let's be conservative, assume he did this in April, and call it 40,000,000 gold) to buy a number of nightmare scarves. He then set them all in the MP for 17.77 million gold and convinced the other sellers to do likewise. The result? Instant price hike.

iDigger's method, illustrates the real problem with 03 and 04's. Since there are so few of them, wealthy users can purchase the one's that exist, wait a bit, and then release them back into the economy one at a time at a huge mark up. Given that only a a few 03's get sold each weak and at most a dozen 04's change hands every two or three days, it would not be difficult to manipulate prices given sufficient gold. This is the so-called "AI" that people are constantly complaining about. While, there is nothing inherently dishonest about this, I think that the evidence indicates it is the driving force behind this. Feel free to disagree.

Anyway, that's my $1 on the subject.