Asia This Day:Bernanke Succession;Syrian Framework

Asian markets were cheered by developments in the US and Geneva Monday morning,sending the MSCI Asia Pacific index up 0.55%.The withdrawal of former US Treasury Secretary Larry Summers from consideration to head the Federal Reserve is being seen as a definite plus by Asia,as it will supposedly make the tapering of supportive Fed policies a little less severe.
We're seeing the rally as being based on Summers being a litle more agressive on tapering,said Philip McNicholas,ASEAN economist at BNP Paribas.Broadly speaking,we do see down side risks to the region with this tapering.We actually think Malaysia is more sensitive.Malaysian markets are closed for a national holiday today.
In the Philippines,the government is being more effective in its spending.That process is still ongoing and showing improvement.Overall,the fundamental story is still there.In Indonesia,the government was able to implement fuel price reform in June.We do think that Thailand can ride this out.
Markets are expecting the Federal Reserve to make an announcement on tapering this week.Mr.Summers' prospective nomination to be Fed Chairman had become highly politicised,and even Democrats opposed him in an open letter supporting the nomination of Janet Yellen,who has become the consensus candidate.
Bill Gross of PIMCO tweeted that Summers' exit makes Monday a huge day for the risk-on trade,i.e.,the buying of equities.
Another positive influence on world markets is the agreement in Geneva on Saturday of a framework for Syrian chemical weapons disarmament by the US and Russia.This will now go to the UN for the final formulation of a Security Council resolution spelling out the details.The framework gives Syria one week to provide a complete inventory of its stockpile;stipulates the first inspection of the weapon sites in November;and the destruction of all the weapons by mid-2014.
US forces will remain on standby in the region to back the agreement up with military action.

Hints of a Recovery

Already,there are signs of economic healing,Mr.Summers pointed out.Key credit spreads are already substantially narrower than last fall.Credit costs are declining.It is our hope that the program will create virtuous circles.The housing cycle must be contained by direct intervention by GSEs to bring down mortgage rates,and through setting of standards directed at payment relief,preventing foreclosures.Lower mortgage rates function like tax cuts.Taken together,these steps address each of the vicious cycles.They will permit the normal processes of economic growth to re-engage over time,the former Treasury Secretary and president of Harvard University predicted at The Brookings Institution.

Anatomy of a Crisis

Greed begets greed and the bubble grows,White House economist Larry Summers said.Then greed gives way to fear,and this fear begets fear.This is the paradox at the heart of fifnacial crises.What is the task of policy in this environment? We need a program that breaks and reverses the vicious cycles.The President's plan moves on jobs,credit and housing,attacking the vicious cycles.The Recovery and Expansion Act is the largest such plan in American history.Already its impacts are being felt,retaining teachers and cops,increasing take-home pay and extending health insurance.Contracts are underway for infrastructure projects.Consumer spending appears to have stabilized,and the financial plan addresses credit contraction.There are two pillars in the President's plan:first,one trillion or more for financing mortgages,student and small business loans through the TALF program,and a public-private partnership enabling banks to divest toxic assets;second,assuring that our banking system is well-capitalized and able to lend on a substantial scale,which starts with the stress test of major banks,Larry Summers noted.

Larry Summers:Circles and Cycles

Larry Summers,Chairman of the White House Economic Council,spoke last week at The Brookings Institution,a Washington think tank.Most recessions are a reaction to inflation-fighting policy,Mr.Summers observed.Others,such as the current one,are reactions to excess.Fifty trillion dollars of wealth have been lost in the past 18 months,leading to declining demand,Gross Domestic Product and employment.Fourteen million jobs have been lost.Our goal is to bring about an expansion that is fundamentally sound,not driven by excess.Without it,we cannot achieve any national goal.Sometimes the right economic metaphor becomes,not a thermostat,but an avalanche,as today.A weakened financial system creates a vicious cycle.These are not processes that are self-correcting,the President's advisor explained.