Monday, January 31, 2022

Notations On Our World (Month-End Edition): On the "Virtual Route 66" This Week


We present a curated view of the final week of January 2022 featuring the Economist, the Financial Times, Letters from an American, The Coop Scoop, Washington Examiner, The Intercept, The Visual Capitalist, and Goldman Sachs as we look forward to the privilege to serve:

Today’s big news is that Supreme Court Justice Stephen Breyer plans to announce this week that he will step down from the court at the end of the term. He is expected to make the announcement tomorrow at an appearance with President Joe Biden. Breyer is 83 years old; he took his seat on the court on August 3, 1994.

While the recent extremes to which Senate Republicans have gone to dominate the Supreme Court have made the seats seem simply to reflect political parties, in fact Breyer’s history on the court shows how American democracy and, with it, the Supreme Court, have become partisan since the 1980s.

Breyer has always been adamant that the court must not be political. Instead, he has advanced a strong defense of democracy, arguing that the main achievement of the Constitution was to set up a system that would accommodate the changing needs of the American people. To that end, he is a scholar of administrative law, examining the detailed ways in which our system works.

Democratic President Bill Clinton appointed Breyer to a seat formerly held by Harry Blackmun, who had been appointed by Republican President Richard Nixon. Blackmun was a justice in the days when it made sense for a Republican to support measures that defended civil rights: he was the author of the 1973 Roe v. Wade decision protecting a woman’s right to choose an abortion. So the seat, itself, has been characterized by pragmatism and moderation, rather than political affiliation, since the 1960s.

Clinton appointed Breyer to the court after President Ronald Reagan had set out to change the Supreme Court to reorder the nature of the country. From 1954 until 1987, the prevailing principle of the court was that it must protect civil rights, especially when state legislatures discriminated against certain populations. Using the Fourteenth Amendment’s declaration that all Americans should enjoy equal protection under the law and receive due process of the law before losing any rights, the Supreme Court stepped in to try to make sure that all Americans were treated equally before the law.

Americans who resented the court’s protection of equal rights insisted that the justices protecting civil rights were “legislating from the bench,” or were exercising “judicial activism” by changing laws that the people’s elected representatives had enacted. They insisted that the court must return to enforcing the letter of the law, simply interpreting what the Framers had written in the Constitution, as they had written it. That view of the Constitution would erase the expansion of civil rights—desegregation, interracial marriage, access to birth control, and so on—that the post–World War II Supreme Court had enshrined into law. Those who embraced this literal version of the Constitution called themselves “originalists” or “textualists,” and their intellectual representative was Justice Antonin Scalia, appointed to the Supreme Court in 1986 by Republican President Ronald Reagan.

Breyer is an intellectual counterpoint to Scalia. In a book Breyer wrote in 2005, he took on originalism with his own interpretation of the Constitution called “Active Liberty.” Breyer explained that we should approach constitutional questions by starting at the beginning: what did the Framers intend for the Constitution to do? Their central goal was not simply to protect liberties like free speech or gun ownership, he argued; their goal was to promote democracy. All court decisions, he said, should take into consideration what conclusion would best promote democracy.

The conviction that the point of the Constitution was to promote democracy meant that Breyer thought that the law should change based on what voters wanted, so long as the majority did not abuse the minority. Every decision was complicated, he told an audience in 2005—if the outcome were obvious, the Supreme Court wouldn’t take the case. But at the end of the day, justices should throw their weight behind whichever decision was more likely to promote democracy.

That idea honored the changing necessities of the modern world and thus stood against the originalists. Although that vision was not always aligned with the Democratic Party, it was firmly rooted in the idea that the point of the Constitution was to anchor a nation in the voice of its people.

Now, of course, thanks to the three justices former president Donald Trump added to the Supreme Court, originalists have a strong majority of six of the nine seats on the court. Biden will undoubtedly try to counter those originalists with a justice who embraces a vision more like Breyer’s, but it would be a mistake to see this as a question of partisanship so much as a question of what, exactly, the American government should look like.

Should the federal government be able to protect equality before the law, or should state legislatures be able to do as they wish? In the last year, the right-wing majority on the Court has allowed the state of Texas to undermine the constitutional rights of women, established by Blackmun’s decision in Roe v. Wade, and has indicated it will challenge the ability of Congress to delegate power to regulatory agencies in the executive branch, thus hamstringing the modern government.

Breyer’s successor will, almost certainly, stand against such “originalism.”

Already, Republican voices are opposing the idea of Biden appointing a Supreme Court justice. During his campaign, Biden vowed he would appoint a Black woman to a position on the Supreme Court, and today White House press secretary Jen Psaki said he would keep that promise. There are a number of truly exceptional candidates for the post. Nonetheless, Fox News Channel personality Sean Hannity tonight called Biden’s promise “unconstitutional discrimination.”

And yet, University of Texas law professor Stephen Vladeck noted that representation on the Supreme Court has been wildly skewed. Of the 115 Supreme Court justices we have had in our history, we have had 108 white men, 2 Black men, and 5 women (4 white; 1 Latina).

Breyer has pointed out that there is almost always a tension in our laws. In this case, should we adhere to the ideal that the law should be race and gender blind, or should we work to remedy past wrongs? This seems an excellent example of where the principles of “Active Liberty” are useful: addressing the obvious skewing of representation on the Supreme Court seems like a good way to promote democracy.

There is other legal news today, as well.

In matters close to Representative Matt Gaetz (R-FL), we learned that Florida shock jock Joe Ellicott has been cooperating with federal prosecutors. Ellicott is friends with Joel Greenberg, the Florida tax official who was friends with Gaetz and who has pleaded guilty to fraud and to sex trafficking of a minor. Greenberg has also been talking to prosecutors, and so has Gaetz’s ex-girlfriend. Tonight the Daily Beast reported that Ellicott could confirm that Greenberg told Gaetz that they had sex with a minor (Gaetz has denied any such knowledge).

Former assistant U.S. attorney for the Southern District of New York Richard Signorelli tweeted that the apparent delay in charging Gaetz in the sex-trafficking case may come from the fact that Greenberg was such a problematic witness that the Department of Justice wanted everything corroborated. The news that both Ellicott and Gaetz’s girlfriend have testified might relieve that concern.



Biden Plays American Roulette (resend)

Putin is a bloody dictator. But he has a legit beef

The Biden administration, in the midst of a relentless pandemic, spiraling inflation, unprecedented levels of civic alienation, rising right wing opposition, and just months away from what might be a shattering set of midterms, has now come up with a new political priority: Hurriedly diving neck deep into the brewing military storm around a threatened Russian invasion of Ukraine.

Even indirect engagement in a convoluted European land war that would pit us, even indirectly, against a nuclear-armed Russia is probably not what most everyday Americans yearn for. I don’t see any rush to break open world maps to search for and sort out Kyiv, Donetsk, Odessa or Dnipro.  Not even good old national chauvinism is bound to ignite much popular support for this involvement.

The Bi-Partisan National Security Blob, however, is downright ecstatic.  Pleased that no Blobbers got their weenies caught in the gears after their total folly was so painfully exposed in Afghanistan six months ago, the usual advocates of militarism and US Exceptionalism are, once again, totally psyched. They’ve been given one more opportunity to strut their stuff, throw their weight around, and conveniently forget their own wretched record in attempting to police and “bring democracy” to the world.

Neocon-turned-Bidenista Max Boot summed up his and others call for a hardline response to Russia saying “The Soviet Union died a deserved death. We cannot stand idly by as Putin attempts to resurrect the ‘evil empire.’”

Meanwhile, Secretary of State Tony Blinken has been making the international rounds, hitching up his pants, stiffening his back and talking tough. "If a single additional Russian force goes into Ukraine in an aggressive way,” he said a few days ago,” that would trigger a swift, a severe and a united response from us and from Europe.”

Not sure what that “severe response” would be as even Biden says no American troops would be sent to Ukraine – though thousands are being deployed to NATO states on the Russian border. More sanctions? Yes. But we have already battered Russia with sanctions and that cost has been baked into Putin’s cake.

The ambiguity, the open-ended peril that this endeavor entails, what a deepening of this conflict might mean for China (Taiwan), has not deterred a massively wide chorus of Democrats, Republicans and just about everybody in between and to their sides from pledging their support. Even if it is not clear what is being supported.  But the pro-interventionist consensus is rock solid across the American political class.

If it were Donald Trump leading this US military posture, liberals would be hysterical in their opposition. With Biden, they are compliant.

As to Biden himself, it’s hard to believe he thinks there is any short-termed political value in this stand. In the long term there certainly isn’t. Yet, given the ear-shattering response to the Russian mobilization, it’s not too much to say that part of Biden’s legacy will be that January 2022 will be marked as the official beginning of The New Cold War.  If he thinks he can exploit this conflict to “look strong” he better think twice.

Democrats and liberals who ought to be opposing this rush to military solutions, have been primed to do otherwise by the rhetoric of the last 5 years during which so many actually and foolishly believed Donald Trump was a Russian agent (rather than just a corrupt Greed Head who admired Putin’s illiberal rule).

This has left the anti-war space wide open for…Republicans. The most strident voice against Biden ramping up for war has been, oh boy, Tucker Carlson. On a nightly basis, he clearly places the underlying blame for this situation on NATO and he’s right. Unfortunately, his Ukraine views are mixed in with rants against vaccines, support for American neo-fascists and expressions of loyalty to Donald Trump. He’s about as sincere in wishes for Ukranian peace as he is about defending the constitution.

Many liberals, meanwhile, have taken a page from the Dick Cheney 2003 Playbook and are now busy labeling any and all dissenters from official Russia policy as “Russian agents” or “moles.”

Sober up. Tucker and Fox news are not Russian agents.  They are simply raging assholes. 

With very few and not so easy to find exceptions, the American media has also been a reliable echo chamber for the Pentagon and the State Department as – frankly—most of its expert talking heads on this issue are veterans of either institution.

I mean among 330 million Americans, can’t the networks find somebody other than the former US Ambassador to Moscow or one of the former NATO Supreme Commanders to analyze what’s going on? Perish the thought they might turn to a real historian to lay out the byzantine complications that underlie this conflict and its origins.

All exposition, any deep context, and worse of all, HISTORY, is the primary evil that television avoids at all cost.  What we get instead is heavy breathing and rising emotional registers from Anderson Cooper, Andrea Mitchell, Erin Burnett and Joy Reid as they try to power through segments on Russia about which, fundamentally, they don’t know a frickin’ thing.

To fully understand the conflict, we could go back a couple hundred years as what we know as Ukraine has been booted in and out of the Russian empire, its sphere of influence and the Soviet Union itself more times that we wish to count.

Given the constricted limits of this newsletter as well as my self-confessed limits on my own historical knowledge, we can start this story around 1998-2000 and the collapse of the Soviet Union.

It was then that Ukraine, with about 40 million people, declared its independence as did numerous other former Soviet Republics.  Simultaneously, the Eastern European nations that had been occupied by the Red Army in the closing days of WWII and that had been turned into “Peoples’ Democratic Republics”  and integrated into the Soviet-led Warsaw Pact military alliance, cast off their Communist regimes and the pact evaporated.

The U.S. moved quickly to fill the void and soon assimilated most of these former Soviet allies into the NATO pact, radically re-ordering the lines of geopolitical stability in Eastern Europe. 

The Clinton and Dubya administrations initiated a rapid expansion of NATO completely flipping the military position of Russia. Instead of having the buffering effect of Warsaw Pact countries on its frontiers, Russia was now being surrounded, quite literally, by US-backed troops along almost its entire Western border.

Putin runs a regime that I have little desire to applaud or endorse.  But his complaint, I’m sorry, has true legitimacy.

NATO was originally conceived as an defensive pact to protest Western Europe against a mostly imagined Soviet invasion. With the collapse of the Soviets, a strong argument could be made that NATO had become obsolete.

Bill Clinton, and the entire US military establishment, strenuously objected and –overnight—NATO was re-energized not only with incorporation of the former Eastern Europe regimes included, but Clinton also gave the alliance the lead role in the war against Serbia.

Some years earlier, in 2008 to be precise, the Bush Administration loudly announced its intention to include the former Soviet republics but now independent countries of Georgia and Ukraine into NATO. Ukraine, with its population of 40 million, and often known as “the breadbasket of Europe” certainly loomed as the brass ring among its smaller neighbors (though it was dwarfed by Russia).

At the time, US. Diplomat and intelligence officer Fiona Hill, who starred as an impeachment witness against Donald Trump, tried (with others) to alert George Bush that continued NATO expansion would unnecessarily provoke the Russians.  She wrote recently in The New York Times:

“Mr. Putin was furious: NATO had just announced that Ukraine and Georgia would eventually join the alliance. This was a compromise formula to allay concerns of our European allies — an explicit promise to join the bloc, but no specific timeline for membership.

At the time, I was the national intelligence officer for Russia and Eurasia, part of a team briefing Mr. Bush. We warned him that Mr. Putin would view steps to bring Ukraine and Georgia closer to NATO as a provocative move that would likely provoke pre-emptive Russian military action. But ultimately, our warnings weren’t heeded.’ (emphasis mine).

Four months later, the Russians invaded Georgia, occupied a northern sector and created a dummy republic that persists today. The Georgians immediately cooled their pro-NATO rhetoric not wishing that Russia take it over completely.

By 2014, though, Ukraine was chafing under pro-Russian oligarchic rule and was looking to associate itself with a European Union trade group that would strengthen its ties to the West. When the Kiev government balked, it sparked a mass uprising that led to regime change and a much more pro-Western government (contrary to the opinion of some American leftists, the Ukraine revolution was organic and bubbled up from the streets. Of course, the US gave this movement internal and external support but to claim that the Maidan Revolution was but a CIA coup reveals staggering ignorance and a toxic level of political dogmatism).

Convinced that this change of government was all prelude to Ukraine entering NATO,  and no doubt deeply alarmed by the anti-Russian tone of the uprising, the Russians moved in a few months later and ignited and fueled a breakaway proxy war in the Donbas region. That conflict remains hot, and the Russians, via the “Republic of Donbas” continue to occupy about 10% of Ukrainian territory. The Russians also took back the Crimean peninsula that has been readily integrated into the Federation and dissolved into greater Russia.

When the Soviets collapsed, the US slyly took advantage of the ensuing chaos to basically scoop up former Russian allies and convert them into NATO members, ensuring that Russia stay bottled up in Russia (though the Russia of 1991 or so posed a threat to exactly nobody).

Putin is now returning the favor.  Knowing the US is also in deep crisis at the moment, with an administration preoccupied on a dozen different fronts, it seemed an ideal moment to punch back and blow a hole in the future of NATO.  Hill argues that he wants simply to kick the US and its military out of Europe and she’s probably correct.

There are reasons that Germany and France are decidedly less enthusiastic about ramping about this conflict. Their domestic energy problems make them dependent on Russian fuel and, more importantly, they no doubt have little desire to see the continent go up in flames over the Ukraine.

There are some logical ways out of this crisis, though I seriously doubt they will even be considered.  The Russians are demanding they be given guarantees that Ukraine and Georgia never be admitted into NATO (which in this writer’s opinion is an obsolete structure that should be disbanded as it seems more an aggravant to peace than a defender).

U.S. negotiator and former Ambassador Wendy Sherman called this Russian demand a “non-starter.”

So, if the US does not want war, supposedly, and if we do not want to deploy troops in Ukraine, just what does anybody intend to do?  The Russians might be very likely to launch another strike on Ukraine while it is equally unlikely it will occupy all of Ukraine.  That would be a real stretch for the Russian military.

Solution to this crisis resides in lowering the temperature on the Russian border and understanding that while Putin might be a bully, a dictator and so on, we still must recognize our own responsibilities in this confrontation and not continue to draw a line in the sand around expanding NATO.

It sounds simplistic, but imagine if during the Cold War, the Soviets had set up military bases and alliances in and with  Canada, Mexico, and all of the Caribbean states (not just Cuba). And remember, during the Cold War we spent billions fighting wars in El Salvador, Nicaragua, Guatemala and Honduras under the pretext that we were defending the hemisphere against Russian influence.

The Russians, now on a very limited basis, are doing the same to the US.

The obvious solution, at least short term, to this crisis is for US and NATO to actually state the obvious: Ukraine will not be admitted anytime in the foreseeable future to NATO (if for no other reason it cannot be included because its borders are not clear – thanks to the Russian annexation and occupation).

A more robust settlement would establish Ukraine as a neutral state that could enjoy warm relations with both East and West.

I wouldn’t bet on it.  On top of historical issues, we are now faced with the immediate political expediencies of both the US and Russian leadership. Putin has an election coming up (of no deep concern) and there’s little doubt he has the resolve to see this through. After successfully militarily intervening in Belarus and Kazakhstan, Putin has got to feel confident.

As to Biden, I have no idea what he is feeling or thinking. I just know it looks like he has stumbled us into a very dangerous and unpredictable place that bodes nothing good. ++

Goldman Sachs
January 27, 2022
As Rates Rise and Stocks Sell Off, What's Next? 
Above (L to R): David Kostin and Jonathan Shugar of Goldman Sachs

Bond yields are repricing higher. Equity prices—particularly shares of high-growth tech companies—have been falling. And investors are resetting their expectations for the year ahead. But the recent moves mask the changing dynamics beneath the surface, says David Kostin, chief U.S. equity strategist in Goldman Sachs Research, on Exchanges at Goldman Sachs. Tech companies with fast-growing revenues but thin-to-negative profit margins have seen their valuations “severely punished,” while their peers with strong revenues and strong margins have seen smaller declines. “The idea of a higher interest rate environment reduces the value of that future expected growth. And that's really important for these companies where their margins are very thin,” Kostin tells host Allison Nathan. Meanwhile, investors are repositioning their portfolios and hedging strategies, according to Jonathan Shugar, who manages equity sales on the cross-asset sales team in the Global Markets Division. “What people own [today] is different than when we started going through this roller coaster back in November,” Shugar says, adding that investors are also more cautious about buying the dips. “People feel like you're going to have a long path ahead of rates hitting markets,” he says. “There's no sense of urgency to act—which is interesting because if you went back to the start of the pandemic where we had a massive sell-off and then a recovery, a lot of people felt that they hadn't taken advantage of those opportunities quickly enough.”

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The Changing Relationship of Growth and Value Stocks

U.S. growth and value stocks are usually highly correlated. As the chart above shows, the correlation between the two (represented by the orange line) has been near 1 since the 2000s. But the last 12 months tell a different story, according to Christian Mueller-Glissmann, who heads the asset allocation team in Goldman Sachs Research. As we move into a new stage in the pandemic, the threat of higher bond yields as the Federal Reserve raises rates has caused bond prices to fall. Investors have been selling growth stocks amid concerns that rising interest rates will put pressure on their equity valuations. And because of the sharp increase in rates volatility and real yields—which are the key discriminating factors between growth and value—the correlation between U.S. value and growth stocks has declined sharply in recent months. “The only other times that happened was in the run-up to the tech bubble in the late 1990s, the dot-com bust shortly after and the 1994 bond market crisis,” Mueller-Glissmann notes. “The recent decorrelation between growth and value has created a large diversification benefit from having exposure to both styles (and non-U.S. regions) in portfolios, which is a big change from the last cycle when it was best to just own U.S. large-cap growth stocks.”

Research: Gender Diversity Performs, Pay Gap Persists

European companies that scored the highest on gender diversity have been outperformers in the stock market since 2008, according to senior European equity strategist Sharon Bell. The firm’s research indicates that having more women in upper management is a sign of lower risk: Companies that have better gender balance tend to have stronger balance sheets, higher margins and more stable earnings, Bell said this week during Goldman Sachs’ virtual Global Macro Conference Asia Pacific. But that shift hasn’t propelled women into the top corporate ranks—only about 6% of the CEOs of companies in the STOXX Europe 600 index are women. The gender pay gap, meanwhile, tends to be narrower in Europe than in the U.S. and Asia, but it’s still there—women are paid about 15% less on average than men. “We’ve made progress in Europe, but it’s still slow,” Bell said.

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Numbers released today by the Bureau of Economic Analysis, which is part of the U.S. Federal Statistical System producing data and official statistics, show that the U.S. economy grew by an astonishing 6.9 percent annual rate from October to December 2021. That puts the growth of the U.S. economy for 2021 at 5.7 percent in 2021. Despite the ongoing pandemic, this is the fastest full-year growth since 1984.

At the same time, the U.S. added 6 million jobs in 2021, pegging the unemployment rate below 4%.

Economists predict that in 2022 the economy will continue to grow at a much higher rate than the 1.8% policymakers generally expect, expanding at 3.9%.

This growth is the outcome of a dramatic change in economic policy launched by the Biden administration through measures like the American Rescue Plan and the bipartisan infrastructure law.

On January 21, Treasury Secretary Janet Yellen explained to the World Economic Forum that the Biden administration rejected Republican supply-side economics, ushered in during the Reagan administration. That system relied on tax cuts and aggressive deregulation to spark private capital—the supply side—to drive the economy. Supply-side economics has not increased growth, Yellen said, while it has failed to address climate change and has shifted money upward as it moved the burden of taxes from capital and put it on workers.

Biden’s economic policy, Yellen explained, rejected this philosophy in favor of what she calls “modern supply-side economics.” This term appears to be intended to suggest a middle ground between the supply-side economics of the 1980s, which focused on putting money in the hands of the wealthy, and the post–World War II idea that the government should manage the economy by investing in infrastructure and a social safety net.

Biden’s plan, Yellen explained, has focused on “labor supply, human capital, public infrastructure, R&D, and investments in a sustainable environment.” Rather than focusing on putting money into the hands of the “demand side” of the economy—consumers—it focuses on developing a strong labor force in a strong democracy to create growth through hard work and innovation.

In its emphasis on education and access to resources, the Biden administration’s economic policy echoes the ideology Abraham Lincoln articulated in 1859. Wealthy southern enslavers insisted the government should simply defend the property rights of the wealthy, who would amass wealth that they would then put to its best use to develop the country. But Lincoln argued that the government should nurture the country’s laborers, who were the nation’s true innovators and hardest workers and who, if properly supported, would move the country forward much faster than a few wealthy men would.

Yellen said, “A country’s long-term growth potential depends on the size of its labor force, the productivity of its workers, the renewability of its resources, and the stability of its political systems.” The administration plans to increase growth by increasing the labor supply and productivity while reducing inequality and environmental damage. “Essentially,” she said, “we aren’t just focused on achieving a high topline growth number that is unsustainable—we are instead aiming for growth that is inclusive and green.”

This new approach is designed to address the problem of a limited labor force. Yellen noted that for decades now, the U.S. has underinvested in public infrastructure, and in education and training for children and for those who are not college-bound. That underinvestment has widened the wealth gap between people with and without specialized training or college degrees. Biden’s policies would address that gap.

Yellen identified investment in children as central to the administration’s policies. Universal childhood education, a cap on childcare costs, and expanded eldercare to relieve pressures on families are designed to enable younger people to join the workforce and boost growth.

When the numbers underlining the success of his policies came out today, President Biden tweeted: “Last year, we had the fastest economic growth in 38 years. While there is still more work to do, it’s clear we are finally building an American economy for the 21st century.”

In contrast, when asked earlier this week about childcare in this moment when the pandemic has created a severe childcare shortage—a gap Biden’s Build Back Better bill is designed in part to address—Senator Ron Johnson (R-WI) made it clear that he saw no such role for government. “People decide to have families and become parents, that’s something they need to consider when they make that choice,” Johnson said. “I’ve never really felt it was society’s responsibility to take care of other people’s children.”

That attitude, the idea behind forty years of supply-side economics and the tax cuts that were its centerpiece, is showing up in opposition to the extension of the Child Tax Credit that lifted more than 30% of America’s children from poverty in the past year. Studies show the Child Tax Credit was enormously effective. It enabled families to buy food and clothing and to pay off debt. But the measure expired in December. Negotiations over the Build Back Better Act continue, but Congress has dropped the Child Tax Credit from the plan. All of the Republicans in the Senate stand against it, as well as at least one Democratic Senator: Joe Manchin of West Virginia, who wants a work requirement added before he will agree to an extension of the policy.

And yet, stories of the end of the new Child Tax Credit system focus not on the Republicans, who oppose it across the board, but on Democrats, who are doing their best to put their new system in place permanently. A piece in Politico today suggested that angry voters who counted on the Child Tax Credit are blaming the Democrats for its demise, and that as families suffer, they too will blame Democrats, who will pay in the 2022 midterms.

Similarly, the media seems to be downplaying the extraordinary success of the Democratic policies and instead focusing on their possible downsides. Today, the Washington Post ran a story that began: “Even as the U.S. economy grew at its fastest pace in decades in 2021, the recovery has more recently flashed troubling warning signs, with soaring inflation, whipsawing financial markets and slowing consumer spending complicating the rebound.”

It was a surprising way to introduce the best economic growth since 1984.

We close out remembering  the fallen of Space Shuttle Challenger :