Oil, interest rates and Trump/GOP borrowing all going up in the US

Remember about a week ago when oil markets were plummeting and the Trump Administration was saying a peace deal with Iran was on the way? I'm talking about the most recent time, not the 15 other times we’ve heard Peace is At Hand in the last few months.

Well, that hope is over. Again. And oil is back on the rise....now with a new lack of availability!

Oil prices jumped on Monday as hopes for a Washington-Tehran deal over the Strait of Hormuz faded and the US's Strategic Petroleum Reserve fell below 300 million barrels, hovering at its lowest level since the 1980s.

The SPR fell by 6.1 million barrels in August, reaching its lowest point since 1983, with inventories at 298.7 million barrels, according to data from the Department of Energy.

The US, like other countries, has been releasing stored crude to make up for supply disruptions sparked by the war in the Middle East, with the Trump administration ordering the release of 172 million barrels in March to steady global markets.

Oil ended up rising nearly $4 a barrel on Monday, finishing above $82 a barrel for the first time since the end of July. I'll add that the draw of 6.1 million barrels only covers the first week of the month, from Saturday, August 1 through Friday, August 7, and is the largest one-week drawdown in more than a month.

Know what else is back on the rise? Long-term bond yields, which touched 4.7% for the 10-year bond for US Treasuries on Monday and 5.25% for the 30-year bond. Check out the trend since bombs started falling on Iran at the end of February.

As much as Fed Chair and Trump confidant Kevin Warsh may want to avoid rate hikes for the benchmark Fed Funds rate, the US bond market is raising rates via their open market trades.

As an effect of the rising rates, we’ve seen expenses to pay off that US debt rise more in Federal Fiscal Year 2026 exceed the increases in either Medicare, Medicaid or Social Security. That number comes from the Congressional Budget Office’s budget review for July, which came out on Monday.

Spending for Social Security benefits rose by $70 billion (or 5 percent) because of increases in average benefits and in the number of beneficiaries. That increase would have been greater but for a significant set of onetime retroactive payments that began in March 2025 and stemmed from the Social Security Fairness Act of 2023, which was enacted in January 2025.

■ Medicare outlays increased by $66 billion (or 8 percent) because of increased enrollment and higher payment rates for services.

■ Medicaid outlays increased by $45 billion (or 8 percent) largely because of rising costs per enrollee….

■ Outlays for net interest on the public debt rose by $117 billion (or 14 percent) because the debt was larger than it was in the first 10 months of fiscal year 2025 and because of higher long-term interest rates. Declines in short-term rates partially mitigated the overall rise in interest payments.

Auctions of new debt are slated to be coming at a faster clip in the coming months, as the US Treasury has now upped its estimate of borrowing needed for the July to September quarter, with nearly ¾ of a trillion dollars now projected to be pushed out.

During the July–September 2026 quarter, Treasury expects to borrow $739 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $950 billion. The borrowing estimate is $68 billion higher than announced in May 2026, primarily due to lower projected net cash flows, partially offset by the higher-than-assumed beginning-of-quarter cash balance. Excluding the higher-than-assumed beginning-of-quarter cash balance, the current quarter borrowing estimate is $87 billion higher than announced in May.

That is a sizable increase in volume of borrowing compared to the 4th quarter of 2025 ($550 billion) and 1st three months of 2026 ($577 billion).

Another item that worth noting from the Treasury’s announcement is that they should stay steady in how much debt they are sending out at one time, with the exception of less borrowing in September as a large amount of taxes are paid, and more needed starting in the month after that.

Based on current forecasts, Treasury expects to maintain current auction sizes in benchmark bills in the coming weeks and anticipates potentially issuing a short-dated CMB to meet its cash management needs around the end of August. Given projections for receipts associated with the mid-September corporate and non-withheld tax date, Treasury expects to implement reductions to shorter-dated bill auction sizes during the month of September. In October, Treasury anticipates increasing auction sizes across the bill curve based on expected seasonal fiscal outflows. As always, Treasury will continue to evaluate near-term borrowing needs and assess additional adjustments to bill auction sizes as appropriate.

Another batch of 10-year and 30-year bonds will have their auctions this week, and that will be something that many look to in order to see if this Summer's rise in longer term rates will continue, and with it, higher costs in a county that is nearly at $40 trillion in overall debt.

Doesn't seem like any of this oil, interest rate or debt news is going in the right direction, does it?

A few turnout points ahead of Tuesday's primary

As someone who is both deeply interested in Tuesday's primary and as someone who is working the polls that day, I was curious to find out how many people might actually be voting in this thing. So I went back to the 2018 August vote, which was also when there was a contested race for Governor for the Democrats.

Overall, there was just under 995,000 votes cast in August 2018, but there was also a contested US Senate primary for the GOP (do you remember when Leah Vukmir was a rising star in WisGOP World? Until Tammy Baldwin beat her by double digits that Fall and she went away). Since you can't vote for more than one party in the primary, there was a split in who voted for who, and there were only 538,857 votes cast on the Dem side.

Tony Evers won comfortably with more than twice as many votes as the next candidate, but he barely exceeded 225,000 votes. So it's not very high numbers we are dealing with in these things. And not surprisingly, the places where the Dem votes came from in 2018 is more toward heavily-blue Milwaukee and Dane Counties, while the suburban WOW Counties in Southeastern Wisconsin and the Fox Valley's BOW Counties don't loom as large as they do in November.

But let's also point out that while Milwaukee and Dane Counties made up nearly 40% of the votes in 2018's Governor primary, there still was more than 60% cast in the other 70 Wisconsin counties, and even outstate counties will make up a significant portion of the electorate.

I would anticipate quite a bit more than 538,000 votes being cast for the Dem Guv primary on Tuesday. Most of that is due to there being no seriously contested statewide primary for the GOP, so casual voters will go for where the heat is in this election, which is on the Dem side (yes, there may be a few dweeby GOPs who may try to vote in the Dem primary to advance Hong. But their numbers are small and they should be careful for what they wish for).

My very unscientific guess is that it means around 700,000+ votes would beon the Dem side, and maybe more like 750,000, given that voting-age population has grown a bit in the 8 years since then. The overwhelming majority of those votes will be on Election Day, since the Wisconsin Elections Commission says there have been a little over 265,000 votes cast so far overall (and that includes all parties).

But even though there will be many more votes cast in 2026's Dem primary, I'm not sure the Dems' Guv winner will have all that much more than Evers' 2018 total of 225,000+. Dems have 7 candidates on the ballot, even though 3 of those candidates have suspended their campaigns, and I think it's conceivable that 8-10% of the votes go to those 3 candidates that left the race, especially since the Elections Commission said "no backsies" for people who already sent in their ballots.

That math was also part of the reason I was going around and around on who to vote for (I eventually settled on Crowley and voted for him yesterday), because I do think Hong has a solid base around 35%, with the other 65% up in the air for all the Dem candidates including Fran. If the goal is to keep Hong from winning, there will likely have to be at least 2/3 of those other 65% to consolidate around one candidate. And given the 8-10% of votes for the candidates that are already out, it may be more like 3/4 of the up-for-grabs non-Hong votes at this point.

We'll see if it happens. And we'll see where the turnout is coming from, especially since there seems to be a significant difference between younger and older voters - something Crowley said may go in his favor, since older people are more likely vote in primaries. Which feels like a bit of hopium there, but who honestly knows at this point?

US job and wage growth falls back to earth in July

For the past couple of months, the US economy had been largely holding up despite still-gloomy consumer sentiment snd higher prices. Part of that was due to a jobs market that had shown signs of strength in 2026, with 3 out of the first 4 months of the year having gains of 150,000 jobs or more, and new unemployment claims being at or near their lowest amounts in 57 years.

Then the July jobs report came out on Friday, and suddenly the employment situation doesn't seem so great in the US.

The July jobs report delivered a nasty surprise: Instead of adding jobs as economists expected, the U.S. economy lost 23,000 jobs. Even worse, May and June payrolls were revised down by a combined 103,000 jobs, revealing a much weaker labor market than previously reported.

— Jon Cooper (@joncooper-us.bsky.social) August 7, 2026 at 1:19 PM

Oops? Maybe not so good. And we are back to an average of less than 50,000 jobs being added per month, much like we were for most of 2025.

But hey, at least the unemployment rate dropped to 4.1%, that's good, right? Not if you read the actual jobs report.

Both the labor force participation rate, at 61.4 percent, and the employment-population ratio, at 58.9 percent, changed little in July. Since January, the labor force participation rate declined by 0.7 percentage point, and the employment-population ratio decreased by 0.5 percentage point.

The labor force (-264,000) and the number of people listed as employed (-87,000) went down in July, and it continues a slide in both measures that we've been seeing since Trump 2.0 kicked into gear in Spring 2025.

In addition to the stagnating overall numbers for jobs, wage growth also flatlined in July.

In July, average hourly earnings for all employees on private nonfarm payrolls, at $37.62, were little changed (+2 cents). Over the year, average hourly earnings have increased by 3.2 percent. In July, average hourly earnings of private-sector production and nonsupervisory employees, at $32.40, were little changed (+4 cents).

Even worse is that the previous two months had average hourly earnings revised down, with May being 2 cents an hour lower, and June being reduced by 4 cents an hour. Which means that average hourly earnings went lower than what was reported last month.

It also gives a clear contrast to the times of inflation of 2022, where wages were rising by 2-3 times as much as they are in Summer 2026. We're back to what wage growth was in 2017, but with inflation 1-2% higher today than it was then.

We find out this week what inflation ended up being for July, and we know gas prices stopped falling that month and creeped back up. And given how bad the jobs market and wage situation got worse last month, I can't think that consumer sentiment for August gets better. And our deteriorating savings rates will get even lower, unless consumer spending nosedives.

The stock market may be bubbly at this time, but the Real Economy for America may have started to slump. We'll have to see what the data that comes out this week and next to see if July is the start of something worse, or a bump in the road.

After a lot of thought, it's Crowley

Math is math, and while I am all in for no matter who wins on Tuesday, because Tiffany as Governor would set this state back another decade and turn the 2028 election into the worst one we've ever seen here, Crowley is the best combo remaining of "can still win the primary" and also "win in November by a solid amount and would help downticket". I blame Kara Spencer for all this mess (look her up), and her boss Sara Rodriguez for not doing more to catch the funding problems before they blew up at a late hour. Onto Great Taste Weekend we go. Have a good one and maybe see ya there (I did see Dan Shafer there a couple of years back).

Consumers spend big in Q2, but incomes did not rise with prices. That can't hold

We got a two-fer of major economic data on Thursday. This included the first look at real GDP for the 2nd quarter of 2026, and the economic growth topline was.... not great.

Economic growth was weaker than expected in the second quarter though underlying drivers were mostly solid. At the same time, inflation in June held well above the Federal Reserve’s goal and complicated the central bank’s policy path, the Commerce Department reported Thursday.

Gross domestic product, a broad measure of goods and services, increased just 1.5% for the April-through June period, according to Bureau of Economic Analysis numbers adjusted for seasonality and inflation.

Economists surveyed by Dow Jones had been looking for a growth rate of 1.8%, following the 2.1% increase in the first quarter.

Sounds bad, especially given that worker producitivty has been growing stronger than 1.5% in recent quarters, but then you dig inside the numbers, and you see consumption bouncing back in the US for Q2, and business investment staying strong. And the main reason the overall GDP number was disappointing was because of a large increase in imports and a decline in inventories.

I've often used a stat I call "Core Private GDP", which takes out the contributions to GDP from trade, government and inventories, all of which are volatile and not necessarily a reflection of the day-to-day economy. If you look at it that way, Core Private GDP growth more than doubled in Q2 2026.

It's all the more remarkable when you realize that the same GDP report says prices in its gross domestice purchases index was up by an annual rate of 5.7% in Q2, so core GDP was up by over 9% before inflation. You read that, and it sounds like we are in boom times and money should be flowing everywhere.

But that's not really true, as that same Thursday's income and spending report showed. In fact, the increase in Employee Compensation for those three months was lower than any of the last 4 quarters of the Joe Biden presidency (a time when many felt they could not keep up with rising prices), and lower growth than what we saw in Q1 2026.

The largest source of increased aggregate income for the second quarter came through non-work sources such as interest and dividend income, and owners' income. That includes billions in payments in May to farmers to make up for losses due to natural disasters in 2023 and 2024.

So if people aren't seeing getting much more money from their jobs, why has been consumption been so strong in the face of higher inflation? Because Americans aren't saving anything, as the national savings rate declined again in June, down to 2.7%. The only time it has been lower in the last 5 years was during the peak months of inflation in the Spring and Summer of 2022.

But if you think our savings rate will rebound as the Summer winds down, I'll note one major difference between August 2026 and August 2022. 4 years ago, gas prices were coming down from their Ukraine War-induced spike, while in 2026, they've been back on the rise for most of the last month.

If you think spending ourselves broke in the face of rising prices is a bad thing, one way that can be stopped is by making it more lucrative to save. And that's done by having the Fed raise interest rates and other methods to slow down price increases and the economy in general. The Fed passed on raising its Fed Funds rate last week, but the bond market has been acting on its own to make it more expensive to borrow.

The Clampdown is coming, and may well already be underway (consumer spending slowed in June). The question is who and what gets clamped on as a result.

A few primary thoughts from Up North

Made my annual trip to Vilas County on Wednesday to hang with family through Saturday. Good to check in with everyone and catch up.

Unlike Madison, its been stormy here, with the power knocked out twice this week. Not really something they're used to in these parts, but might be something that needs adjusting to in the 2020s.

I was looking for any indications on the primary election that's already having early voting for our state. Couldn't find much, including almost no yard signs or radio ads for any candidate from Wausau northward, despite it being in the 7th Congressional district, which has a multi-candidate GOP primary for Tom Tiffany's seat, in addition to the Dem primary for Governor.

Sure seems like a candidate could get a bit of boost in these parts with a few signs or billboards that give the impression to others on the road that they're someone with support and worth checking out. Since I've been away, did anything happen with the Governor's race in the last 2 days?

Silly goose, of course I know that Mandela Barnes pulled the plug right before a story was going to come out about him creeping on young Dem staffers. What an absolute dud of a campaign for that guy - spent the most money, had by far the highest name recognition, and Dem voters overwhelmingly turned him down and how he lacked the juice.

And now we find out Mandela had this time bomb of bad behavior towards women looming? Just underscores how this guy was up his own backside, and never learned the lessons of blowing that 2022 race vs Ron Johnson.

If there's a lesson to be learned from this bizarre primary, maybe the biggest is that high-priced Dem consultants are no substitute for getting in front of voters (both online and in person), and maybe that idea of "yard signs don't vote/professional organizations win campaigns" is also outdated in a time of an attention economy where voters don't trust the pros that have lost races for Dems too many times.

Weird and wild stuff. I'll have more to break down in both economy and the last week of this race when I get back to the big city.

Dem guv candidates have different specifics on budget surplus, while Tiffany has nothing

Ahead of tonight's debate, I wanted to draw your attention to a goosd rundown from the Wisconsin State Journal on what the various governor’s candidates say they would do. Among the list of questions given to each of the candidates for governor in this article was one that asked why each candidate had opposed the property tax and school funding deal from May that Tony Evers and GOP Legislative leaders tried to get through (click here if you want a reminder of what was in that). And the State Journal also asked what they’d want to do with the estimated $3 billion that would be in the bank for the state for the 2-year budget that would start next July 1.

Let’s start with the GOP Guv candidate Tom Tiffany on why he opposed the budget surplus deal and what he’d do with the money.

The last state budget increased spending by roughly 15%, exceeding $100 billion for the first time in Wisconsin history, so I believe the full surplus should be returned to taxpayers. The problem isn't that taxpayers aren't sending enough money to Madison. The problem is that government has drifted away from its core responsibilities. Government should focus on doing the basics well: keeping our communities safe, maintaining our roads and bridges, educating our kids and funding special education, caring for our most vulnerable citizens and protecting taxpayers. Instead, we've seen too much growth in bureaucracy, too many new programs and too little accountability.

These are a bunch of random words that add up to nothing. Where are the specifics as to how any of this will be done? HOW will the money be “returned to taxpayers”. HOW will our most vulnerable citizens be cared for or our schools and our roads and bridges be funded? What are these “basics” of government?

It’s not like Tiffany was asked off the cuff as part a video/radio interview for a 30-second answer. This is a written, allegedly thought-out response to the question! And that "$100 billion" comment on the budget isn't the total being paid in state taxes. It's the total over 2 years for ALL sources of funds, including $33.7 billion from the Feds, and another $31.4 billion is paid for by fees for services like campground admissions, UW sporting events, room and board fees, and licensing. The total over two years is $111 billion up front and another $3 billion being borrowed.

And a guy who has spent the last 2 years in Congress voting to explode our US budget deficit with tax cuts to the rich and major increases in funding for ICE and to give $1.15 trillion to our military next year has zero credibility on fiscal items.

Compare Tiffany's response with what the current leader in the polls for the Dems wants to do.

[State Rep. Francesca Hong:] The deal used a temporary surplus for one-time payments, new spending and permanent reductions in state revenue. It’s not fiscally responsible to make permanent monetary commitments without permanent revenue to sustain them. A recurring program funded only by one-time money creates the same structural problem as a permanent tax cut funded by a temporary windfall.

One-time money should pay for one-time needs; permanent commitments require permanent revenue. I would use surplus dollars to strengthen our reserves, pay down debt and deferred costs, repair public buildings, replace lead pipes, clean up PFAS contamination and capitalize revolving funds that finance affordable housing and infrastructure.

“One-time money for one-time needs” seems pretty fiscally conservative to me, doesn’t it? Hong also reminds us that the state package included an exclusion of income taxes on tips and overtime premiums that would have gone on beyond 2028, when those Trump/GOP tax cuts end at the federal level.

There is a guy in this race who oversaw the arranging of the state budget for Tony Evers for both the 2019-21 and 2021-23 budget cycles – Joel Brennan. So let's see what he would have done.

There was a better one-time option sitting right there. The Child Care Bridge Payments program was about to expire. Renewing it instead of letting it lapse would have been real, targeted money solving an actual crisis, not a check that skips over the families who need it most. And that commitment would cost the state a little over $100 million, not the entirety of the expected surplus. We must be cautious in a Trump economy, because we know that gas prices will continue to be volatile and that Trump tariffs have already cost Wisconsin families nearly $1,100 this year. More harm to our economy over the next year from Trump’s federal actions is a near certainty.

I like Brennan’s idea of bridging the funds on Child Care Bridge Payments to avoid long-term commitments. But I’m not a fan of banking the rest of the surplus, because additional funds will be needed to both reduce property taxes and reverse the damage to education and our economic competitiveness that we’ve had to deal with over the last 15 years.

That said, I also understand that there are a sizable number of unfunded mandates in Medicaid, SNAP and other federal programs whose costs are going to be shoved down to the State in the next 2 years due to the Trump/GOP Tax Scam 2.0 that Tom Tiffany voted for. So we won't have nearly the cushion that some may think we have.

As for the other candidates – Milwaukee County Executive David Crowley also uses Hong’s “one-time surpluses should be used strategically for one-time needs” theme, and goes on to say the surplus should be used for generic Dem priorities that he says improves the economy with investments in “education, workforce development, infrastructure, housing, and childcare.”

Mandela Barnes is relatively generic as to how he would use the billions at his disposal for 2027-29, but he does mention the need for Dems to win both houses of the Legislature to get “the deal Wisconsinites deserve”. Which I agree with, and I recall Crowley telling “Up Front” over the weekend about the need to be a Dem “team captain” as the nominee. Which makes it all the odder that Barnes has run such a sluggish campaign that isn't geared toward firing up Dems with the rare opportunity that is out there.

Barnes’ budget plans include

fully funded schools, make the wealthy pay their fair share, and cut taxes for middle-class families. We will do that by using the surplus responsibly—ensuring we do not create a structural deficit—alongside taxing the rich and closing the loopholes that let billionaires get away without paying their fair share.

Good themes to be sure, and I'd call it as a "less specific progressive" plan.

State Sen. Kelda Roys was one of the first legislators to publicly oppose the package, and reiterated to the State Journal about the structural deficit that would have loomed in the next budget had it become law. She follows with this explanation of what she would ask for as Governor.

One-time rebate checks do nothing to create long-term solutions to the state’s budgetary challenges or to reduce property taxes, but if we use the [surplus] balance as a bridge to help ease the transition to a functional school funding formula and a phase-out of the voucher program, we can actually improve the state’s bottom line.

Interesting connection between eliminating vouchers as a fiscally responsible move, and given how voucher funding has exploded in the 15 years that Republicans have been in power in the Legislature.

Clawing back that $394 million that was taken away from public schools (and added to in property taxes) to pay for vouchers in 2025-26 sure seems like a logical place to cut if you want to have real changes in where resources go in our state.

The state budget and the funding ideas behind it is likely the largest item the new governor of Wisconsin would do. And so ahead of tonight’s debate, I wanted to forward this thing so you can see what the Dem candidates would want to do with it, and also to note that Tom Tiffany either has no idea or is hiding his real plans about the state budget. It’s amazing that a guy who was in the majority party in the State Legislature for a decade seems to not know much about what he’d do in the Capitol should this state be dumb enough to give him the Governor’s job.

While that’s far from the only red flag you should have about Tom Tiffany, it really shows why Dems need to hammer that fool relentlessly and make him try to give some real answers. And to make our media ask him real questions.