In 30 seconds: Financial commentators debate whether the US can escape a debt spiral given debt/GDP at 120%, with interest and entitlements already exceeding tax receipts, and whether Fed rate hikes amplify rather than tame inflation at this debt level. August 2026 nonfarm payrolls surged to +162,000, more than triple the 55,000 consensus forecast, with positive revisions adding 55,000 more jobs, prompting debate about whether the Fed will hike rates in September. Brad Setser highlights how nearly 1% of US GDP in corporate profits is taxed primarily in Ireland and Singapore rather than the US, while also examining China's use of domestic FX deposits as a backdoor currency intervention tool and the widening US current account deficit approaching 6% of GDP. Brent crude prices have risen to their highest in over a month and diesel hit an all-time high of $5.85 a gallon as Middle East oil exports remain severely disrupted despite efforts to reopen the Strait of Hormuz, while the Trump administration's $40-55 oil price target draws skepticism from energy analysts.
Here is the basic arithmetic of a trap. Insurers, meanwhile, are loaded with illiquid private credit they cannot sell without catastrophic marks. The heterodox claim is that rate hikes are now pro-inflationary. Over the past 150 years, 98% of countries that hit 130% debt/GDP have defaulted on their debt, almost always via sustained high inflation — and the one counterexample, Japan, is now trying to inflate its debt away. US budget deficit: ~6%. Gold: $4,479.00.
The same Gold driving US Debt Spiral, Inflation, and Fed Policy Debate is also a factor in August Jobs Report Blows Past Expectations.
Average hourly earnings rose 0.27% on the month, reaching $37.75. Gold slipped 0.28% on the day, settling at $4,479.
Close to a percentage point of US GDP in what should mostly be US source profits are now taxed primarily in Ireland. That is a remarkable sentence to write. There is a big difference between the effective tax rate many US firms report and the effective tax rate they pay in the US. When close to a percentage point of US GDP in profits that should be US-taxed ends up taxed primarily in Ireland, the numbers stop being a rounding error. $3 trillion a year as share of GDP: 10%. The US current account deficit may be heading toward 6 percent of GDP. Domestic fx deposits seem to move like a backdoor intervention variable, rising, ironically, when the CNY is under pressure to appreciate. The mechanism works like this: Chinese banks are bidding for dollars onshore even with plentiful supply, in part because they don't want CNY to invest in CGBs, which absorbs fx that otherwise would be sold to the PBOC or its agents. The correlation between fx deposits onshore and fx settlement exists, the argument goes, because both are ways of absorbing appreciation pressure on the CNY. Higher deposit rates at banks can soak up dollars and prevent the yuan from rising too fast. Investing cash abroad also relieves some of the downward pressure on domestic yields.
Oil exports from the Middle East remain severely disrupted despite efforts to re-open the Strait of Hormuz. Energy Secretary Wright was attempting to sell his shale company in January 2025 with WTI at $73 and could not find any bids because buyers could not make the math work at $73. Bessent says $40 for oil prices. US national average diesel price: $5.85 a gallon. The US national average diesel price has hit $5.85 a gallon, an all-time high. Oil exports from the Middle East remain severely disrupted despite efforts to re-open the Strait of Hormuz, with Dated Brent climbing over $100 per barrel.
Here is what moved this week.
S&P 500: 7,718.60, down 0.38% on the day
Gold: $4,479.00, down 0.28% on the day
US Dollar (DXY): 99.16, up 0.16% on the day
WTI crude: $91.39, up 0.10% on the day
Gas (per gallon): $4.07, down 0.34% on the week
30-year fixed mortgage: 6.71%, up 5 bp on the week
Initial jobless claims: 206,000, up 0.98% on the week
Continuing claims: 1,779,000, up 0.45% on the week
Average hourly earnings: $37.75, up 0.27% on the month