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Fed's Magic Trick, Big Tech
00:04:30
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| Hello everybody and thank you for tuning in to the weekly report. | |
| The Federal Reserve's magic trick, big tech. | |
| Now you see it. | |
| Maybe soon you won't. | |
| Over the last year, the seeming ability of stock values of many technology companies to keep rising forever met resistance. | |
| These were the result of both bad decisions and changing market conditions. | |
| For example, the end of COVID lockdowns obviously reduced demand for Amazon's delivery services. | |
| Also, an increasing number of people are leaving Facebook and other meta-sites for newer social media sites. | |
| Many of those who use social media for political organization, education, or discussion are abandoning Facebook and YouTube for sites such as Rumble, sites that don't de-platform individuals for sharing opinions and news that displeases woke bureaucrats and politicians. | |
| The magician in this scenario, the Federal Reserve, played a major role in big and medium and small tech's rise and fall. | |
| Technology writer David Streitfeld, writing in the New York Times, recently examined how the Fed's 2008 market meltdown-related policy of near-zero interest rates led many investors to throw money at tech companies. | |
| In many cases, these investors would not have bought tech company stock had the Fed not distorted the signals sent by interest rates, which are the price of money. | |
| The historic expansion of the Fed balance sheet, thanks to quantitative easing, also helped create a tech bubble. | |
| Now that the Fed is raising interest rates, although still keeping them well below what they would likely be in a free market, the tech bubble is being popped as investors are able to get a more realistic view of tech companies' values. | |
| This is causing a painful but necessary correction. | |
| For example, Carvana, which aimed to be the Amazon of used cars, went from an $80 billion valuation to a $1.5 billion valuation, a 98% loss in just 18 months. | |
| Also, the Fed created tech bubble, allowed Amazon to lose millions of opening new businesses, including physical bookstores. | |
| Amazon announced in March of last year, the same month the Fed started increasing interest rates that it would close all its bookstores. | |
| The tech bubble enabled large companies to grow via mergers and acquisitions. | |
| Many small and startup companies attracted investors with a promise of a big payoff for an acquisition. | |
| The frequency of tech-related mergers and acquisitions is a major reason behind the left and some people on the right's renewed interest in antitrust laws. | |
| Federal Trade Commission Chairman Lena Kahn owes her position to her advocacy of using antitrust to limit the growth of big tech. | |
| Khan's crusade against big tech has suffered some setbacks in the courts. | |
| However, Kahn need not worry since the Federal Reserve may do a more effective job of limiting tech-related mergers and acquisitions than the FCC ever could. | |
| Sam Abusamed, principal analyst with Guide House Insights, accurately summed up the tech industry's recent history for Streitfeld's article. | |
| The whole tech industry of the last 15 years was built by cheap money. | |
| Now they're getting hit by a new reality and they will pay the price. | |
| Federal Reserve created bubbles and busts are not a new reality. | |
| They have been with us since the Fed was created and will remain until the system collapses or until Congress audits, then ends the Fed. | |