I suppose 2008 will be remembered as the year when the bottom fell out of the markets and America elected Barack Obama. If the former is likely to send most readers screaming back to John Maynard Keynes (or perhaps to the remarkably detailed and candid The Snowball: Warren Buffett and the Business of Life, by Alice Schroeder), it also means that books fall into the imperilled category of discretionary spending, though Christmas must be a seasonal exception.

Whatever else it is, the election of Obama is a  shift comparable to Kennedy's Camelot moment, in 1960. Whether he turns out to be the Roosevelt figure who can solve the world's woes (perhaps with the aid of the Buffetts) will be a particular fascination for readers of his spellbinding autobiography, Dreams from My Father, which has just come out as an audio book, read in those princely tones that have now become part of the rhythm of the world. Obama is one of those politicians who can quote Faulkner (the past is not even past): a reminder that language lives, for all of us, primarily through fiction.

In this country there has been the first novel in years by Helen Garner, The Spare Room, which is in the tradition of her excursions into non-fiction where the main character, intimately identifiable as a version of Garner, is an unreliable narrator whom the author is not at all interested in showing in a flattering light. She is beside herself at the exasperations of looking after a terminally ill friend, and Garner gives this predicament the momentum of a thriller. A new novel in the tradition of early Garner is The Slap, by Christos Tsiolkas, far and away the best thing this author has done, a riveting novel about friends and families that recalls Tim Winton at his best. And there is a suspenseful intensity in Winton's latest, Breath, which begins with the piteous spectacle of masturbatory asphyxiation gone wrong and goes on to make the idea of breathing central to a surfer boy's quest for identity. At first Winton's tone seems self-congratulatory, but eventually the waves rise like a catastrophe.

That is scarcely true of the most extraordinary piece of fiction published in this country this year, Murray Bail's The Pages, an elegiac novel about a couple of women who go in quest of a dead Thinker with a family resemblance to the awkward but dazzling narrative sensibility that brought this book into being. And Kate Grenville's The Lieutenant is an intimate re-imagining of Australia's first settlement which is intrinsically novelistic, though it will appeal to the kind of reader who longs for the dark well of this nation's past, as well as the colour and costumery of collective imagining.

The dazzling debut piece of fiction this year was Nam Le's The Boat, in which an Australian writer still in his twenties knocks off a suite of superbly variegated stories that range with stunning suppleness from Australian high schools to the political turbulence of Iran. In contrast, Julia Leigh's Disquiet is an obsessive, almost suffocating novella by the author of that brilliant first novel The Hunter who spent a year sitting at the feet of Toni Morrison. And Morrison herself has brought out a shortish novel, A Mercy, which mingles her verbal mastery with a representation of the horrors of slavery, without the inevitable magic of her masterpiece Beloved, though this will not deter her diehard readers.

John Updike, in The Widows of Eastwick, might be seen as feeding on past glories. Philip Roth's Indignation is one of his further explorations of the historical past that formed him, in this case the period of the Korean War. But if the greatest writers can seem to shadowbox the ghosts of their achievement, this is never true of the astonishing Joyce Carol Oates. Her new novel, My Sister, My Love, with a plot unmistakeably suggested by the mystery of the JonBenet Ramsay case, has the disconcerting quality of being narrated by a now late-adolescent boy, the brother of the dead girl, and the style mirrors the younger American postmodernists. Even if you wonder if Joyce Carol Oates is laying it on too thick, it's astonishing that she can ape these kinds of hi-jinks. It's a reminder, too, of the saddest fact in this year's literary calendar, the death of David Foster Wallace. Infinite Jest and Brief Interviews with Hideous Men are masterpieces that transformed the fictional idiom of our time. Read him if you want a genius to wrestle with over the holidays.

Non-fiction choices depend so much on personal interests. This is least true of Chloe Hooper's The Tall Man, where the momentum of the story has the dramatic power of an investigative construction by Janet Malcolm or Helen Garner. The power of the evidence marshalled is not separate from the momentum of the writing. This is at some remove from Peter Costello's Memoirs, which have the benefit of collaboration with the formidable Peter Coleman, the former treasurer's father-in-law, but were so over-hyped that the book was denied the novelty of what would have been its revelations.

Manning Clark is, by contrast, an enduring legend. Brian Matthews' Manning Clark: A Life has a rhapsodic personal touch from the outset, when Matthews presents the historian kneeling in the chapel of the Blessed Virgin Mary to ask for her intercession in his fight against the grog. Matthews' is an unusual biography because it is so manifestly the work of an Australianist who is a literary man to his fingertips and a critic intent on analysing situations and statements. Christina Thompson's Come on Shore and We Will Kill and Eat You All, meanwhile, is an account of how Bostonian and Maori perspectives can be intermingled. It's a mini-epic, utterly engaging and beautifully paced, by the former editor of Meanjin.

Criticism, or its afterlife, is the subject of George Steiner's peculiar but arresting suite of essays My Unwritten Books, about all the full-scale books he didn't write. Evelyn Juers has, in House of Exile, written an intensely literary study of Heinrich Mann. It will be read alongside Andrea Weiss's enthralling biography of Erika and Klaus Mann, In the Shadow of the Magic Mountain, which tells the bottomlessly sad story of the brother and sister, children of Thomas Mann, united in their bewitchment by drugs and hatred of fascism.

If you want the warm breath of letters, you can choose between the stately cadences of Shirley Hazzard and her late husband, Francis Steegmuller, in The Ancient Shore, or - again by a master of prose - Penelope Fitzgerald's So I Have Thought of You. Then again, your taste might run to the much less poised, sometimes lamely confessional letters of Manning Clark in Ever, Manning (a companion to the Matthews biography). Or if you want pure shrieking-peacock personality, try the dash of Ever, Dirk: The Bogarde Letters. There's a striking one to the adoptive Tasmanian Nicholas Shakespeare saying how his book-review commissions kept the great actor of The Damned and Death in Venice alive. This is a book so dripping with personality almost no one will be able to stop reading it.

Books about entertainers always abound at this time of year. Sean Connery, in Being a Scot, mixes anecdotes about playing Macbeth with a vast amount of information about his beloved Scotland, its history and culture. His successor, Roger Moore, in My Word is My Bond, has a lighter touch, as in his performances. There is candour about his modest London childhood and plenty of stories, silly and credible, about his more-than-60-year career.

James Davidson's mammoth study of The Greeks and Greek Love, erudite and detailed, seems in the end a monument to a pretty personal take on the subject. Robert Dessaix's account of André Gide, in Arabesques, is gorgeous and idiosyncratic, even if we wonder if this is Gide or simply Dessaix's bit of him. Many people will curl up with the magisterial account of Churchill and Australia, by Graham Freudenberg, or - at the opposite end of British nostalgia - Home, Julie Andrews' memoir that discloses how her father was not her real father and what it was like to deal with a Rex Harrison who was harder to handle than Henry Higgins, or to be Richard Burton's Queen Guinevere (yes, in Camelot, beloved of Kennedy).

Aficionados of the musical will like getting The Oxford Companion to the American Musical, by Thomas Hischak, in their Christmas stocking. And there's Mary Hunter's Mozart's Operas: A Companion, if you want a tonier work of musical reference. Those with an interest in the church will read John O'Malley's witty and erudite What Happened at Vatican II. And no one could fail to find themselves more deeply haunted by the America of our dreams and nightmares than by reading Don Watson's American Journeys. Another deeply charming book about America is Simon Schama's The American Future, in which the British-born historian articulates his own sense of American exceptionalism. A much more dispiriting book is Peter Dale Scott's The Road to 9/11, gunning for Bush and Cheney all the way.

Those with a taste for fantasy will devour the vampire-plus-soap delights of Stephanie Meyer's saga, which has its latest instalment in Breaking Dawn. Gregory Maguire's A Lion Among Men shows the maestro of Wicked re-imagining the back-story of the Cowardly Lion. Brisingr is the latest instalment in Christopher Paolini's dragon saga that began with Eragon.

Trash is sometimes just what the heart desires. Candace Bushnell's One Fifth Avenue is a deft creation of its luxurious dream world. Jeffrey Archer's A Prisoner of Birth is a Count of Monte Cristo story about a working boy who is framed but subsequently sets about setting straight. And in PD James's latest, The Private Patient, a middle-aged journalist books herself into a clinic for some plastic surgery and gets knocked off. It's replete with the sage Adam Dalgliesh and a cast of characters full of subtleties and quirks, all served with the right degree of literary sophistication and novelistic seriousness to allow the poison to warm the heart like a whisky.

If John le Carré is more your poison, it should be noted that in A Most Wanted Man he has made the so-called War on Terror - le Carré is a sceptic - into his most viable mythology since the Cold War. And the spy of spies, James Bond, rides again in Sebastian Faulks' Devil May Care, probably the most assiduous pastiche of Ian Fleming that's ever been written.

What does that leave? Classics. There is a splendid reprint of Peter Green's translation of Apollonius of Rhodes' Argonautika, and a decent-looking translation by Sarah Ruden of The Aeneid that comes with a recommendation from JM Coetzee.

If you want poetry, you might try Australian wildlife by water in Robert Adamson's The Golden Bird, a new-and-selected. And it's the four-hundredth anniversary of John Milton's birth, so Naxos has done a spoken-word set of his greatest hits which will allow you to listen to (among others) Derek Jacobi and Samantha Bond (Moneypenny in the Pierce Brosnan Bond films) reading things like ‘Lycidas' and ‘Il Penseroso'.

In the audio field, I listened to a new complete recording by Nigel Anthony of Conrad's Nostromo, one of the most devastating political novels ever written. There are also two splendid brand-new Shakespeare recordings: Othello, with Chiwetel Ejiofor as the Moor and Ewan McGregor as Iago; and a knockout Merchant of Venice, with Antony Sher as Shylock. It even gives the beautiful voice of Barack Obama a run for its money.

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