Big Changes at the Top Institutions

A year from now, global economic governance will look very different indeed.

DSK's departure at the head of the IMF has opened up a debate not only on who should replace him, but whether the Europeans should be allowed to appoint his replacement. Voices are increasing for a non-European candidate to succeed Strauss-Kahn. This is a sentiment that I currently believe has merit.

The Basel Committee on Banking Supervision will lose its current Chairperson, the head of the Dutch Central Bank Nout Wellink, within the next few weeks.

The head of the Financial Stability Board in Basel, Mario Draghi, will be leaving to head the European Central Bank this October, and has not yet been replaced. The President of the World Bank Group, Robert Zoellick, has a term of office that extends to the end of June 2012. That will be the last of the pending appointments

Pascal Lamy, head of the WTO, is in office until September 2013, so the focus will be on the financial side for the moment.

The next bubble has started

All bubbles start with hope. And a lot of cash looking for the next big thing to bet on. The trends right now? Social media, real estate and commodities. There is another trend in sovereign debt which needs to be treated separately.

Social media? Microsoft is purchasing Skype for an estimated 8 billion US dollars. Facebook has enlisted Goldman Sachs to run its IPO (its debut onto the stock market, or Initial Public Offering), with a suggested valuation of 50 billion. Zynga, the company that runs games on the Facebook platform like Farmville, is still deciding when to go public, but it will. There is a mantra going around Wall Street that the IPO of any compnay is its bar mitzvah, its coming of age.

Real estate? Unless you have serious money, you've probably heard less about it, but private equity is purchasing real estate worldwide. Prices are lower in some markets, where bargains are to be had, and rising in others, where there are significant returns on investments into the future. Think BRIC countries. The savvy investor looks here and in other emerging markets for growth.

Commodities? Sure, it's volatile, but it hasn't stopped speculation and rising prices. And Glencore's IPO valuation this year is 11 billion dollars.

All of these areas will be key to pushing the search for returns in the years ahead. But how are companies arriving at these valuations? Have we learned anything from the bubbles that burst in the past? I don't see any evidence yet. At the same time, we are already paying a higher price through inflation. It is on its way up, with interest rates following. Strong economies outside the OECD can handle this. The OECD countries themselves are in for a period of interest rates that will hurt those parts of the population not living within the bubble. The gap between rich and poor will increase.

On the other side of the global financial equation, the bubble in sovereign debt is not so much bursting, but making that farting noise that an inflated balloon makes when you let go of the stem and let the air out. Europe is falling apart, American debt has been downgraded, and is likely to slide even further. There will be losses. And they seem to be inevitable.

There is only one part of this bubble that is really concentrated in the traditional OECD countries, and that is in social media. That may provide the illusion of prosperity for a while, but it cannot replace or even balance the increasing shift of economic activity to emerging markets.