Internet stocks plunged on average more than 50% yesterday. This is the biggest single day loss of a sector on record. The decline started during a speech of FED Governor Rasser at the University of Michigan where he was talking about policy options in fighting deflation.
Rasser gave a detailed account of the instruments used by the FED in recent years to fight deflation. He first defended the FED’s view that the huge asset purchase programs that have been running for years now are essential for keeping prices from declining.
He also discussed the positive impact of the taxes introduced on natural gas and oil. An analysis conducted by his staff suggests that the deflationary forces introduced by cheap shale gas and oil have been neutralized by the introduction of the tax on the US natural gas production.
He went on to present another study by his staff that shows how secondary market platforms for consumer goods on the internet constrain producers to increase their prices. Internet stocks started their decline when Rasser suggested that the government consider putting substantial transaction taxes on consumer to consumer transactions on the internet.