Is an Inflation Shock Next? A Natural Gas Energy Shock Could Be the Spark

Finance U Public Finance U
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Originally published at: https://peakprosperity.com/is-an-inflation-shock-next-a-natural-gas-energy-shock-could-be-the-spark/

Long government bonds – those with durations of 10, 20, 30 and even 40 years – are clearly signaling something, and it’s not good.

It’s getting harder and harder not to notice:

“National debt concerns” is code speak for “Dude, they’re going to have to fire up the printers to max speed.”

Under those circumstances, who would want to loan a government money for 30 years only to get a dollar-for-dollar principal return in the year 2055? Lol!

So if long bonds are the canaries, what’s the poisonous gas? In my view it’s the chance that we’re about to almost perfectly repeat the inflationary double-hump from the 1970’s:

(Source)

Now, to be clear, I don’t subscribe much to the idea that charts that happen to overlay each other mean that things will necessarily repeat. But when the charts and the history overlay each, then we’ve got something to consider.

Paul Kiker and I discussed the thesis that this time will resemble last time, when it was an oil supply shock that drove the second hump of inflation. This time it’s likely to be both natural gas and oil that will contribute to future inflation, as will continued government deficit spending.

Where energy shocks provided the spark in 1979, expansionary monetary and fiscal policies amplified and sustained the inflationary bonfire.

In other words, we could be facing an exact repeat of the conditions that drove that second hump in the late 1970’s and early 1980’s.

A second insight from that period is that the humps lasted ~4-5 years. In other words, once the inflation genie is out of the bottle, it takes both time and a Fed Chairman with balls of steel to get it back in its bottle. Of course, I am referring to Paul Volker who hiked short term interest rates to 21%, with long rates as high as 17%, taking enormous political pressure and career risks to get the job done.

Can you even imagine that happening today? No, neither can I.

But wait, where’s this energy shock going to come from?

Well, to begin the conversation, it’s already here:

As we’ve been documenting extensively over the past year, it’s almost as if nobody in charge is adding up all the data center demand and making plans for where and how those electricity demands will be met. Which means, for now, US consumers are getting hit with an electricity cost shock, with the average bill up 35% over the past 3 years.

But, maybe that’s okay if we’re building lots of new electrical power generation plants, indeed, they are going in at a furious pace:

With more than 90GW of natural gas electricity generators in the planning stages now (up 6x over the past year), the ‘plan’ is to slap in a bunch of NG-fired power plants, and STAT!

At average generation capacity levels, those 90GW will draw ~8.3 billion cubic feet per day (bcf/d) of natural gas.

Now wander with me over to the EIA’s projections of US NG production over the next year.

Oops! Zero growth in production is what they foresee. I think that may even be optimistic, and we might even experience some slight declines.

But wait! It gets worse for US NG supplies:

It would seem that newly permitted LNG terminals are going to demand an additional +4 bcf/d by year-end 2026.

Between new power plants and LNG exports, we’re talking about ~12 bcf/d of new demand over the next year. And this possibly undercounts the data centers that are putting in private NG generators.

Which means there’s a non-zero chance of a supply shock happening in NG in the US. Because there’s no such thing as running a deficit in NG, every molecule that comes out of the ground is consumed along the way. This means that our old handy-dandy Econ 101 Supply-Demand-Price chart comes into play, with price being the means of settling a supply-demand mismatch.

In plain English, prices will spike, possibly by a lot, which has happened many times in NG’s history:

Will it happen again? I think so, and it’s going to be called “inflation,” but I think we should more rightly call it “a really stupid failure to plan.”

So that’s the double-hump inflation thesis.

We also discussed:

  • Real-World Price Shocks: Anecdotal evidence, like a 60% price increase in beef loin over 15 months, and recent shocking experiences with soaring costs for dining and travel,
  • Lying BLS Statisticians: the gap between official inflation metrics (e.g., CPI at 2.7%) and lived experiences, with fast food prices up significantly (e.g., Subway up 39% since 2014), driven by such statistical tricks as “substitution.”
  • Bessent’s Housing Emergency: What’s he referring to and how might the US government intervene? We speculated about possibilities like 50-year mortgages or possibly ultra-low mortgage rates being granted to first-time home buyers.
  • Gold and Silver’s Breakouts: Gold and silver prices have truly broken out, reinforcing the inflation thesis. Also of note, the Saudi Central Bank’s investment in the SLV ETF and silver’s structural supply shortfall (seven years running) highlight growing demand.
  • Economic Policy Critiques: We noted unchecked government spending ($3.8 trillion in additional fiscal spending) and monetary easing, which could fuel inflation.
  • GDP Accounting Trickery: Most of the GDP “strength” reported for Q2 was actually driven by declining imports (which are additive to the GDP calculation) which we might also interpret as signaling underlying economic weakness, not strength.

So what comes next? Well, stocks are not priced for a recession, and most people’s portfolios are not ready for an inflation shock. At all.

Having a balanced risk-managed approach is vital during such times to preserve one’s investment wealth. To arrange a meeting with Paul’s firm to discuss your financial plans and goals along with a risk-managed portfolio approach, please visit Peak Financial Investing and fill out the simple contact form.

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I really can’t believe you two are blaming this fracking’ mess in any way on “boomers”?

You both need to get control of your language and stay off the false narratives.

Like every other age group there is a mix.

Do you want conservative, liberty minded “boomers” on side ?

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You’re right on that… some expert threw that 99% of jobs vanish with AI finishing what factory automations started and perfected in past 30 years. We are living endtimes of automation. It is gonna be brutal regardless of population decline, that is way too slow thing.
Perhaps even peak shale oil/energy shortages are secondary with this gigantic shift in society. Our “caveman mind” still think in terms of Dunbar number village and everyone must do something “useful”, that we cant understand that 90-99.9% of actual tasks are really done by robots and computers. That is simply that doesnt “compute” in human mind and psyche.

I look at semiconductor factory and they say factory floors in many places are 100% automated. Humans are not allowed in those areas. That is simply mindboggling that try to grasp but some kickback is constantly pushing back. That explains why some products despite insane number of parts and steps to make them are so cheap.

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I am not throwing the baby out with the bath water just because there is no time schedule for critical events. So here are my two cents.
Covid 19 money creation has been placed temporarily in the “mattress cover” we call bonds and savings accounts. The money supply expansion was just a fraction of what Johnson and Congress did with their guns and butter policies. All these dollars are a claim on future production. Meanwhile, under threat of inflation, people will hoard and buy things just to preserve the value of what they worked so hard to acquire. That means spending would increase.
Continuing on into the foreseeable future are the expenditure rates of people and government. All of these are a claim on future production that does not now exist! All the unfunded liabilities will be funded either by punishing taxes or degradation of living standards. Therefore, how is future production supposed rise to the occasion with so much income going to unproductive debt service and unfunded liabilities. Where exactly will the capital come from to keep pace with all this money, demand, rebuilding and debt service costs all coming due together? I need to see the numbers. What I do know is that one man’s wealth is another’s debt and that wealth will disappear when debt is not serviced.
Some huge proportion of all dollars are located outside the USA. That money is safely in foreign hands as long as they can turn their dollars into something they want. Even the slightest whiff of capital controls or tax on repatriation of dollars, and these dollars will flood back to the US adding to the future demand on production. And remember the limits already exist on future production. Raw materials, food, and infrastructure all apply limits. Already existing are tariffs that will doubtless affect foreign economies and their ability to service debt. All of this is economic and social turmoil and insecurity.
When capital feels under threat, it moves away from that threat. One has to ask: how would the US absorb all of that money demanding goods and services? Well, it is anybody’s guess if the US will maintain a market free for the rest of the world to buy things. How is all that to be accommodated? The only government resource that might absorb all of that excess money would be through the sale of national forest and coastal lands currently held by Department of Defense. Maybe there is something else. I cannot think of what it might be. The alternative is inflation until income is adequate to service debt/promises.

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The emergency housing declaration will include longer amortization terms AND a stake in the buyers home (probably 10% of the purchase price, or more) which the homeowner will NOT have to make monthly payments on while he/she lives in the home but WILL have to pay it off when the home sells or refinances.

California did the above a couple years ago.

When the real estate bubble pops, what happens? The 10% stake the government owns in your home is now is 30% or 40% of the houses depreciated value. What does this accomplish? The ownership of american real estate will slowly transfer to entities like Blackrock who will eventually bring the USA closer to Klause’s dream of the pleb’s owning nothing and never being happier. All it will take is 2 bubble/bust cycles in real estate and the 30%-40% equity position by the government will go to 100%.

The long term goals of the powers that should not be are still their long terms goals.

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I seem to remember that there was almost 10 trillion in short bonds coming due this year and most of that should have transpired by now. How can we see what happened with all of those bonds when the came due? Where they bought domestically or abroad, I did hear that they were getting purchased but by who, they must be in really bad places if they are buying a declining asset.

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Are you kidding me? The tail-end of the boomers get this stagflationary period at the beginning AND end of our careers?

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Here is my thesis. The entire COVID crisis in 2020-2021 was just cover for another Great Financial Crisis and Crash of 2008-09.

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There are no reins and the younger generation better be skilled in riding bareback

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LOL!

That was funny.

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Why?

It’s up to each generation to pay for itself. The boomers not only have failed to do that, but are leaving behind a hot mess of deferred maintenance.

Worst. Generation. Ever.

So far.

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Here is how this is working. When the middle-class is gone and there is only the 1-percent left, the elites and the government will blame the 99-percent for their abject poverty. They will way things like “Who said you deserved to have a house? Who said you deserved to have a car? Who said you deserved an education? Who said you deserved affordable healthcare?” And on and on.

What this all comes down to is this: "You will have a job (a house, a home, a family, a family pet, family holidays, a vacation, a car, an education, all of it) until somebody doesn’t like you, and then you won’t.

They will make it personal. Personal about you. The nightmare will be that you have no responsible parties to appeal to. They will all be in it together.

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The other thing about precious metals is how the “Mom and Pop” coin stores are coming up empty on supplies of gold and silver. Coming soon to wanton and open criminality will be how you are going to have to buy through major sellers, like APMEX and JM Bullion, who already record any and every transaction you make (while making you agree to accept “cookies,” and then your only sell back option will be through the government, at their price. Which means the government will make between 20- and 40-percent profit on your precious metals. Open and wanton criminality.

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Boomer is a useless term that lumps in both good and bad folks from a specific range of years.

This will allow young people to not look at the actions of individuals but they will “hate” a group. It is collectivist and exactly what Mao did turn turn the youth in the elderly.

You should be ashamed of yourselves.

Regards,

Swagger in – Stagger out – Repeat

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I would agree, en mass, there are however outliers of which we consider our selves.

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the boomers were lucky, full stop. don’t blame them for (eating all the porridge) their being fortuitously born during expanding cheap energy, consumer goods not dreamed of (before said cheap energy). Many have tried to be able to pass on a better base for living; but famines follow feasts, solar cycles happen.
‘plunderers of the earth’ by Julius Ruechel

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This is why I produced this week’s scouting report on the divide…as it’s not so much between elites or 1%-ers and the Hoi-Palloi as it is between the utilitarians (i.e. Communists) and the people who believe they actually have rights that are not ‘granted’ by or from the state.

It’s a big deal.

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I get help from ChatGPT since I’m not a scientist, but it seems to me the the bitcoin purists have a problem with energy consuption as part of their ‘honest money revolution’:

On a network-wide basis, XRP Ledger (XRPL) uses so little electricity that replacing Bitcoin with XRPL for the same on-chain settlement role would save roughly hundreds of thousands of times the energy.

Bitcoin annual electricity use: commonly estimated in the hundreds of TWh per year (the Cambridge Bitcoin Electricity Consumption Index hovers around ~180 TWh/yr recently).

XRPL annual electricity use: about 0.494 MWh (≈ 494,000 Wh, i.e., 0.000494 TWh) for the whole network per year, according to the XRPL sustainability dashboard.

Using those two figures, XRPL’s annual consumption is ~360,000× lower than Bitcoin’s (180 ÷ 0.000494 ≈ 364,000). Put differently, shifting a Bitcoin-sized settlement task to XRPL would save ~99.9997% of the electricity.

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Yes. I watched all of your weekly report with you and Paul Kiker. You and Paul do great things together, however, the two of you don’t go far enough. IMO. My comment (please see above) reflects what I took away from that video.

I have not watched your latest scouting reports.

The latest Substack report by Simplicius “SITREP 9/5/25: Rumblings of New ‘Major’ Russian Offensive as Elite Units Regroup”

“Incidentally, during Gerasimov’s recent broadcast general staff meeting, a map was spotted on the wall which shows Russian territory as encompassing all of Kherson, Nikolayev, and Odessa regions:shows a Russian press conference. Right up in front is a map of Ukraine.”

This was a real eye opener.

If true, and if this is how the battlelines end up, the Ukrainian army will have collapsed. Reports are that elements of the US 101st Airborne are already in Romania, ready to move into Odessa if the Russians get too close.

Looking at the Russian map, Russia could conceivably take all of Ukraine which I believe they have no choice but to do. I am no fan of Russia, but as an American I believe my country needs a serious whopping. All this endless war and endless warmongering must stop. Defeat on the battlefield, coupled with a sovereign debt default, would do wonders for getting this country to finally start telling itself the truth. But it probably won’t. Nothing will at this point, unfortunately.

Best.

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