How do the Americans finance this deficit? What impact does this have on the value of the US dollar? Is this good or bad for the Americans? Explain.

Jim Hussle and Edwar Lezear from Congressional Budget Office reviled during Monday press conference that deficit in 2008 is going to reach record figure of $490 billion. This information causes immediate response in Stock Market. No one expected such a big deficit even White House estimated it to around $389 billion. This issue is going to be the most important task to deal with for a new president of United States, he might follow the “old” steps which were usually taken by previous governments. In 2006 to finance deficit USA voted to rise debt limit to $9 trillion. During 5 years of Bush authority deficit increase to $ 8.2 trillion from $5.6 trillions. In those years the main strategy was rising a debt limit. Other way of financing deficit is increase of interest rates so that government can take money directly from circulation – those money comes from bank. Government gives the promise of giving them plus interest rate. This method is a vitious circle, because in the next year government should have a surplus equal to money they borrowed plus interest they have to pay and if not than government is still in deficit. US used to print more money, which in case of dollar currency is not bringing inflation as it would in other countries. US dollar is a tradable currency, they trade it with oil and military equipment, but recent situation shows a shift to Asian countries, which now are buying US treasury bonds. Those bonds were used to bought by US banks but recently their interest rate is really low so none of the banks is interested in investing in them. Intervention from China, Japan and North Korea gives US opportunity to decrease their defict but in the same time in becoming more dependent from their decisions. If China will spot buying bonds we can assume that after few months government monetary resources will become empty. This situation is very good for China they can manipulate their currency and criticise USA without any negative reaction from them. Foreign direct investments in US market or portfolios are another practice which is already used in USA crisis, most of investors are Arabic countries especially Saudi Arabia. Estimations shows that around 7% of American land is already in Arabic szejk’s hands and it is following the increasing trend.
This situation is not best for US dollar, huge deficit contributed to weak position of US dollar. It fallen against euro and other major currencies. Federal Reserve officer said that this is a warning sign on inflation but any further assumptions would be misleading. Recently main European countries become more secure and confidence into currencies become more unstable. USA can lost power over their economy but it would never happened because all countries that invested in USA are willing to maintain dollar stable. They want to gain money not loose them, so the question is does china have a power over USA holding most of their US dollars or does USA is manipulating market spreading their currency all over the world.
A lot of Americans are already suffering from recent situation, most of them are not used to struggle in basics of their life styles. US population is complaining about increase of oil prices and commodities, but we in European countries never lived “American dream “ life and we are used to be hard workers and constantly try to innovate ways of earning money. Giving simple example of changes that Americans are not used to sacrifice for they well being is use of bicycles. In Europe people who really struggle with oil prices are using bicycles or public transport, but in USA they would refuse bunch of other goods except driving a car. One thing is that most of American roads, sidewalks are not adjusted to that but also people mentality is that they don’t perceiving it as normal way of transports. Public transport is perceived as vehicle for low class income people and bikes are usually seen as sport equipment. Lack of education and lack of unconscious preparation for bad times that might happen caused huge shock for American citizens to whom this situation is going to be very difficult to deal with.