Globalization should be more democratic than authoritarian, more openly political than bureaucratic, and more integrated than specialized.

The idea of global governance is a process of cooperative leadership that brings together national governments, multilateral public agencies, and civil society to achieve commonly accepted goals.
According to the International Monetary Fund (IMF), it provides strategic direction and then marshals collective energies to address global challenges. To be effective, it must be inclusive, dynamic, and able to span national and sectoral boundaries and interests. It should operate through soft rather than hard power. It should be more democratic than authoritarian, more openly political than bureaucratic, and more integrated than specialized.
Shortcomings in global governance, if not addressed, will only worsen in the years to come and could undermine the progress that globalization has brought.

Demographic Change
The coming generation will see an immense and challenging transformation in the world. The overriding challenge will be to absorb a huge increase in population. Demographers in the UN and elsewhere project that world population will grow by half, from 6 billion people in 2000 to 9 billion in 2050, before leveling off.
Much of the discussion of demographic trends in recent years has focused on the inexorable rise in the elderly population and the effects this will have on tax burdens and the provision of health care and other social services.
Even more overwhelming is the expected pressure on development prospects. All of the additional 3 billion people will be living in developing countries, where the majority today live in conditions of poverty.
The primary Millennium Development Goal is to reduce the rate of extreme poverty by half between 1990 and 2015. The goal is being met globally, and even those regions that are lagging are now at least achieving growth in per capita incomes.
Sustaining that progress throughout the transformation over the coming decades will require leadership in, and cooperation among, rich and poor countries, multilateral institutions, the private sector, and civil society.

Energy
Another vital and growing global challenge is the provision of energy.
Already, for example, 2 billion people have no access to electricity. Add 3 billion more people to the world by 2050, and there will be 5 billion potential new customers, which is a billion more than the number who have access now. The scale of the effort in the electricity sector alone that will be required to meet this new incremental demand is daunting, even leaving aside the related tasks of modernizing transportation, reducing pollution, and minimizing climate change stemming from human activities.
The scale of investment in new sources of electricity generation and distribution required to meet the rising demand will be massive, even without considering replacing and upgrading existing capacity or adopting cleaner technology.
The energy challenge for the future cannot be met without strong leadership and coordination. A global energy market exists, with global institutions that monitor markets and represent different parties.

What Can Be Done?
Strengthening the governance of global interactions requires action on three fronts: rationalizing the relationships among sovereign states, updating the existing multilateral institutions, and creating an effective oversight body.
The first and most important front is to reform the process by which national political leaders come together at the summit or ministerial level to discuss common concerns.
The second front is to update the system of multilateral institutions. Some, like the IMF, are seen as efficient but lacking in political legitimacy; others, such as the UN, are seen as just the opposite.
The third front is to generate a new mandate for relating the panoply of international institutions to global challenges. Generating this new mandate should be a priority task for a new global steering committee of heads of state.
The fragmented international system of today is composed of multiple institutions, agencies, and actors with specialized mandates.
What is required is a transition to a global system of reformed institutions and new governance mechanisms that can harness diverse energies and resources in a cohesive way to respond effectively to urgent global challenges in the age of massive economic and social transformation that lies ahead.

American corporate profits may come under pressure if, as expected, the economy slows under the influence of the turmoil in the housing market.

If history is any guide, 2008 should be a better-than-average year for America’s stock markets. Figures culled from the Barclays Equity-Gilt Study show that since 1926 Wall Street has risen by an average of 8.8 percent in presidential-election years, perhaps because politicians pull out all the stops to ensure they get elected.
However, although such statistics may be superficially appealing, this could easily be a random effect. After all, 1932 was an election year and it saw the absolute market nadir after the crash of 1929.
The markets also fell in 1940, 1948, 1960, 1984 and 2000. In down years for the stock market the incumbent party was just as likely to be reelected as thrown out from office.
According to Businessweek.com, if politics has any effect in 2008 it may be to make investors a little nervous. This will be the first presidential election since 1952 in which neither a sitting president nor vice-president is running for office.
That will create a climate of uncertainty, which markets traditionally dislike. And, to the extent that either party is the favorite, it will be the Democrats, whereas Wall Street favors the Republicans.
The election aside, perhaps the key question for markets is whether the profitability of the corporate sector can be sustained. In America, profits are running at around a 40-year high as a proportion of GDP.
Optimists argue that, on the basis of forecast profits, shares look cheap by historical standards. But the pessimists say this is because profits are cyclically high; use a smoothed average of profits and valuations are as high as they were before the crash of 1929.
American corporate profits may come under pressure if, as expected, the economy slows under the influence of the turmoil in the housing market. And equities may also lose one source of support if the credit crunch that started in the summer of 2007 lessens the ability of private-equity groups to launch takeovers and also makes it harder for companies to buy back their own shares.
However, as the year rolls on, investors may start looking to an economic rebound in 2009, especially if the Federal Reserve continues the cycle of interest-rate cuts that began in September 2007.
In foreign-exchange markets, the big issue will be the durability of the carry trade, which has seen speculators borrow in low-yielding currencies--notably the yen--to invest in higher-yielding currencies and assets.
The carry trade has had several wobbles in recent years as investors have taken fright and left some of its more exotic beneficiaries, such as the Icelandic krona or the New Zealand dollar. The main pressure on the carry trade in 2008 will probably come from the combination of falling American interest rates and some modest increases in Japanese rates.
The danger is that investors will tire of losing money and cut their bets, causing a sharp jump in the yen.
However, the good news is that a combination of a weaker dollar and slower American economic growth should reduce the American trade deficit, one of the main imbalances in the global economy.
In bond markets, the credit crunch of summer 2007 will continue to reverberate. Rating agencies are expecting an increase in the default rate on corporate bonds, if only because cash-strapped companies will find it more difficult to find finance.
That will inevitably provide a further test for the complex structured products created in recent years, such as collateralized debt obligations.
Investors will be looking to see whether the subprime effect is repeated in corporate debt; in other words, whether the repackaging of loans and bonds has led to a lowering of credit standards. That may well be the case, since the dash for yield in 2004-06 made it far easier for companies to raise funds on what, by historical standards, looked rather generous terms. What seems virtually certain is that there will be some scandals.

The Chinese currency is expected to appreciate by more than 8 percent next year.

China’s latest interest rate hike would have no easily quantifiable impact on the influx of so-called “hot money“ as such funds would not be deposited in banks simply to earn higher rates, Ou Minggang, deputy chief editor of the Chinese Banker magazine, told Xinhua.net.
Rather, analysts said, funds were likely to be attracted into China by an anticipated appreciation of the yuan and continued gains in the equity and real estate markets.
“Hot money“ refers to short-term capital flows that move from market to market, seeking the highest returns.
The People’s Bank of China (PBOC), the central bank, announced recently that it would raise the one-year deposit interest rate by 27 basis points to 4.14 percent and the lending rate by 18 basis points to 7.47 percent, effective on Friday, December 21.
This rate hike was China’s sixth this year, part of a series of moves to ease inflation pressure, as the economy is expected to expand 11.5 percent for the full year.
Meanwhile, last week, the US Federal Reserve sliced a key interest rate by 25 basis points to 4.25 percent, the third reduction in three months, in an effort to prevent a recession.
There are market rumors that, as Chinese and US rates converge, more “hot money“ will flow into China as some investors bet on the appreciation of the Chinese currency. But that isn’t the government’s main concern, analysts said.
“The key concern for the central government is to cool off the red-hot economy, not the influx of hot money from overseas and foreign exchange problems,“ said Tang Min, deputy secretary-general of the China Development Research Foundation.
China’s consumer price index (CPI), the key inflation indicator, surged to an 11-year high of 6.9 percent in November, mainly driven by soaring food prices.
Any fund inflow would be “targeted at the financial markets including the surging stock market and the real estate market,“ said Ou, adding that the country would attract the inflow of hot money betting on the appreciation of the yuan.
Market observers predicted that next year, the Chinese currency would appreciate by more than 8 percent. The Renminbi, which stood at 7.3572 to one US dollar on Friday, has appreciated about 11 percent since China depegged it from the US dollar in July 2005.
China has taken a series of measures to cool off the economy, including increasing interest rates, encouraging domestic consumption, and better managing the property and stock markets.