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How Do Hedge Funds Affect the U.S. Economy?


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 If hedge funds can dramatically increase the cost of oil, they can have a huge impact on the economy. Oil prices are a component of inflation, which cuts into consumers ability to purchase. Since consumer products are 70% of the U.S. economy, a restriction in consumers buying power will lead to a slowdown in the economy’s growth.

The other real impact hedge funds can have on the economy is if they cause a run-up in the stock market, causing unsophisticated individual investors to buy stocks or mutual funds. If they then leave the stock market, and invest in bonds or commodities, those individual investors could lose a lot of their savings, thus jeopardizing their retirement. This all sounds like conjecture simply because no one really knows what hedge funds are invested in, and how much they have invested. Some estimates are that funds have over $1 trillion in assets around the world.(Source:The Economist, “Why Investors Should Fuss About Hedge Fund Fees," November 16, 2006)

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