Team,
This is Part 2 of my in-studio War Room conversation with Steve Bannon.
During the segment, we touch on topics also covered in my RealClearMarkets pieces, including tariffs, the Fed, and economic indicators.
As Steve and I discuss, tariffs are a big wall to protect Americans from unfair trade, and they are resulting in all sorts of investment in the United States.
We’re seeing that happen in real time with a surge in construction jobs, because you’ve got to build the factories first. Once the factories are built, we get manufacturing. The data show a surge in construction, and the ISM Manufacturing Index has been above 50 for five months in a row.
Contributing to this is the Big Beautiful Bill provision for 100-percent expensing when you build a factory in the U.S. and manufacture here.
We’re having good growth, but one challenge is that the Fed hasn’t lowered interest rates, and we also have to contend with headwinds from Iran. This is going to be a cautionary time. But the best thing we’ve got going for us is the strategic energy dominance we have built.
We produce more energy than Saudi Arabia and Russia combined. My first job in Washington was at the Department of Energy, where I studied how the U.S. could become less dependent on foreign oil. I never dreamed that there would be this thing called fracking, and fracking has become a major boon to American strategic energy dominance.
Returning to tariffs, Democrats try to argue that tariffs cause inflation, but we know they don’t. President Trump’s first term showed this.
The reality is very simple.
Countries like China, Germany, Japan, and Korea have been heavily dependent on growth from exporting goods to us, and the last thing they’re going to do is simply raise their own prices when we place tariffs on them. The American market is too important to their export-dependent economies, and these countries instead eat the tariffs.
I appreciate your comments, and please be sure to share.
Peter
TRANSCRIPT
STEVE BANNON: Okay, thanks. We’re back. Okay. Pull inflation because I want—our audience must understand where we are.
DR. NAVARRO: Okay. Okay.
BANNON: And our audience trusts you, right? You were my co-host. You were one of the biggest contrib—by the way, we didn’t have a bad run of contributors. And you, Vought, Bessent, Monica, I mean, we had a pretty good run.
DR. NAVARRO: Not bad. Not bad.
BANNON: We had a pretty good run.
DR. NAVARRO: Not bad.
BANNON: So, come on, tell us what’s going on. Because people are sitting there going, the rent’s too damn high. The food’s too damn high. I don’t want to hear any happy talk.
DR. NAVARRO: Yeah. There’s no question that that’s true. All that’s true. But here’s the question: should the Fed raise interest rates based on economic data? And my claim is that if the Fed raises interest rates, that will guarantee a recession and it won’t really cure any kind of problem at all. And what you have to do is distinguish between two kinds of inflation. The normal kind is demand-pull, too much money chasing too few goods. It’s when you get fiscal stimuluses that drive us into debt, you get both inflation and growth with demand-pull inflation. Both inflation and growth. So a Fed rate hike makes sense to rein in the inflation by reining in the growth. Okay? Now, that’s not what we have here. What we have here is a classic energy-price shock, like we had for example in the 1970s stagflation era, like we had in the 1990s.
BANNON: Hang on. Full stop. Full stop.
DR. NAVARRO: Yeah.
BANNON: You’re getting ahead of us here.
DR. NAVARRO: Stagflation.
BANNON: Hang on, you’re getting ahead of us.
DR. NAVARRO: Okay.
BANNON: I’ve got to understand this.
DR. NAVARRO: Okay.
BANNON: So, I got the energy shock. That started, and I’m going to pick a random date, February 28th of this year. Okay? No, I want to go back.
DR. NAVARRO: Yeah.
BANNON: You and Bessent and Russ and the whole team—Hassett, you had a plan. Supply-side growth, etcetera. The present. It was working, but on the growth side it was working, we still had what they call affordability. There were still some inflation issues. You agree? Before the 28th of February.
DR. NAVARRO: For example, beef, which is a really difficult problem to hold.
BANNON: Let’s just talk about why—but why—was that still the demand-pull? Was that still the—
DR. NAVARRO: But everything was—yeah. Look, everything was coming down, trending nicely. The core was coming, trending down nicely. It was going to hit two [percent]. Life was going to be good. But the problem—
BANNON: That said, I’m going to get back to the Fed’s target of two. We’re going to get there. I can see that in the summer or early fall. But the glide slope, we’re on the glide slope, correct?
DR. NAVARRO: No question.
BANNON: Then comes February 28th.
DR. NAVARRO: Yes. And then you get the energy-price shock. But let me lay the groundwork, lay the predicate. Demand-pull. Hang on.
BANNON: Did you geniuses over there think about the issue of the supply side, it’s shock that was about to come
DR. NAVARRO: Of course. Look, but demand-pull gets you inflation and growth. Fed hike works because it brings down inflation and therefore it brings down growth because it basically induces slower growth. Because it—okay. Stagflation, you get the inflation but you also get the recession, because when people are paying more for gasoline, they’re not buying stuff in the economy.
BANNON: Right. I understand. And you were the first one to call stagflation back in the Biden years—
DR. NAVARRO: Yes.
BANNON: —when Biden first did it, and you had the inflation thing, right where Krugman and all these other geniuses had it wrong, correct?
DR. NAVARRO: Correct. And so in this case, what history tells us, going back to Greenspan, Kuwait War, Nineties, oil-price shock, Bernanke, Iran oil-price shock 2006, you do not raise rates into an oil-price shock because you will just make things worse. You don’t make things better. So that’s where we are. So, what I’m looking at the data, let me tell you what the data says.
BANNON: Well, hang on for a second before you talk to the data. Why are we having this conversation at all? Because [Kevin] Warsh—under no circumstance will Warsh raise rates, right?
DR. NAVARRO: Look, that first meeting was not meeting my expectations.
BANNON: Okay, tell me why.
DR. NAVARRO: That was way, way hawkish.
BANNON: Okay, fine.
DR. NAVARRO: Okay. Now, you could argue—
BANNON: Tell people about that, because they want inside baseball.
DR. NAVARRO: —that he wasn’t the hawk because when you published all those dot plots—
BANNON: Hang on. Stop. He’s like going into Saigon in 1968. The Viet Cong is all around him. You’ve got Powell and his minions are on that board, including the ones that we haven’t, we tried to turf out and haven’t turfed out yet from cheating on their mortgages. Talk to people about why it was more hawkish. Because this is what—I want the audience to understand what Warsh is walking into, because this is emblematic of every institution. What [Bill] Pulte’s seeing in DNI, what people are seeing in the Department of War, the town is run by a permanent government, we call it the Deep State. You have a financial Deep State. And this is, my point is, it’s so far gone, you’ve got to go back to Andrew Jackson, get rid of the central bank. But tell us—
DR. NAVARRO: Given that this is General Custer’s day, you could kind of liken Warsh to walking into that or at least risking that.
BANNON: Well, talk about that. Tell why was it hawkish?
DR. NAVARRO: So, you’ve got seven people, including Warsh, that will vote on Fed policies. Rate hike, stay the same, cut, right? Four of them are Biden appointees.
BANNON: Hang on. Full stop.
DR. NAVARRO: What do you got?
BANNON: Breaking news: former national security advisor John Bolton pleaded guilty in federal court on Friday to the one count of retained national security information related to his tenure during the first Trump Administration. Bolton served national security advisor above…Bolton faces a prison sense of up to 60 months and has agreed to pay a 2.2 million dollar fine. But what did the judge rule?
[PRODUCER EXPLAINS OFF-CAMERA]
BANNON: Ah, he just pled guilty. They’re going to sentence later…No, no, no. Then we have months—God, the first time my producer’s ever talked on the show. His name is—he lives at—No, no, no. So, he gets—okay, so we have our work to do between now and October to make sure he gets 60 months. I don’t think John Bolton will handle prison well.
DR. NAVARRO: Well, you and I both know some of the guys that were in there did far less than John Bolton did and they’re serving far more time than he might even get. So—
BANNON: The fine is nothing The fine is nothing.
DR. NAVARRO: Be that as it may—
BANNON: Okay, go back.
DR. NAVARRO: So, we’re back to Warsh—
BANNON: Yeah.
DR. NAVARRO: —in a hostile environment—
BANNON: Did you go to prison, by the way?
DR. NAVARRO: [Laughs] Are we going there? Are you going there, man?
BANNON: Some of us—some of us—others went to—
DR. NAVARRO: Yeah, yeah.
BANNON: Did your backhand improve?
DR. NAVARRO: Hey, whatever this guy says, all you’ve got to know is that there’s more danger in a dorm with, like, 50 guys that could kill you than having his little celly in there that he paid off.
BANNON: By the way—hold it. I will say—
DR. NAVARRO: Are you going there, really?
BANNON: I’ll say the following: you went to a camp, but it was probably more dangerous than the damn big federal prison. Those camps can get a little dicey. If you get the bad draw, and you got a bad draw.
DR. NAVARRO: Yeah, that camp is known for bad draws.
BANNON: Bad hombres.
DR. NAVARRO: Yes. But—
BANNON: Okay, keep going. Talk about—
DR. NAVARRO: Why are those drones flying overhead? What are they—every day they’re dropping shit down, man.
BANNON: Unbelievable. It’s the way they get the drugs and the phones in. I said, ‘What are these things?’ Drones. It’s like the daily drop.
DR. NAVARRO: There are certain things that I’ll never talk about that I saw in there, for good reason. But it’s prison.
BANNON: Prison.
DR. NAVARRO: It’s prison. But speaking of prison, Kevin Warsh.
BANNON: Kevin Warsh.
DR. NAVARRO: So, he’s got four out of the seven that are Biden people who hate us. [Chris]Waller is a fifth that was a Trump appointee or maybe a Bush appointee, but he’s in the same ilk. He’s not a Trump guy. And so Warsh has historically been a hawk on inflation.
BANNON: These people have Trump Derangement Syndrome.
DR. NAVARRO: Yes. But here’s what he did, which set the table. These things called dot plots, okay? He wants to get rid of them, but he didn’t. What he did was he published each person’s dot plot, which is what—
BANNON: What’s a dot plot? Explain to the audience—
DR. NAVARRO: So I say to you, Steve—
BANNON: What’s a dot plot?
DR. NAVARRO: Steve, draw the dots for what interest rates are going to look like over the next four quarters—
BANNON: Based on your analytical—
DR. NAVARRO: Yes.
BANNON: You do that, but it comes out—it’s manifested in dots.
DR. NAVARRO: Yes. And you do it, like, independent of the other people and then you compare the dot plots and that gives Wall Street a chance to make even more money on Polymarkets. So, he published the dot plots and all the dot plots that he published said Fed rate hikes by the end of the year. Okay? Very hawkish. Okay? And to be clear, the markets did not react well to that. So, he publishes these dot plots and then he doesn’t say anything about the dot plots that would be contradictory to the dot plots. And off he goes. I mean, look, I wish him well. I hope he will do what he promised.
BANNON: No, but hang on. Don’t be wishing him well.
DR. NAVARRO: Yeah.
BANNON: The guy is at Fort Apache. What people don’t understand, this goes back to why we are burning daylight and you got to take on the Deep State or the whole Trump revolution’s going to be meaningless. And taking on the Deep State, there’s a Deep State financially that is controlled by the lords of easy money on Wall Street.
DR. NAVARRO: But you see, he could have said the same thing I’m saying, which is to say, you know what? This is an energy-price shock. When my predecessor Alan Greenspan had the same problem when the Kuwait War broke out, he didn’t raise interest rates.
BANNON: In ’92, ’91, ’91. Yeah.
DR. NAVARRO: Yeah. And then when Ben Bernanke had the same problem in ’06—and you know what the parallels are there, Steve? This is, like, scary stuff. It’s like, in 2006 we had oil prices spiking. Why? Because Iran was making all sorts of noises about refusing to back down on nuclear weapons. They had Ahmadinejad, you remember that?
BANNON: I remember him.
DR. NAVARRO: Crazy man, talking literally about burying the state of Israel, and they seized a British boat in the Strait of Hormuz and imprisoned, like, 16 British sailors, right? And that was in what? ’06, 20 years ago. They’re still pulling the same crap. But the point is that when Bernanke saw that, he didn’t raise interest rates either because it’s stagflation. It’s an energy-price shock. You don’t do that. Stagflation is the worst. You get the inflation and you get the recession when you have an oil-price shock, so you don’t pile on. Now, Kevin Warsh could have pointed out the same thing I’m pointing out there. Instead, all he did was publish the dot plots—
BANNON: Yeah.
DR. NAVARRO: —and leave Wall Street with the impression that somehow we should raise rates.
[CUT TO RETURN FROM BREAK]
BANNON: Let’s get back to numbers.
DR. NAVARRO: Yes.
BANNON: You’re the numbers guy. Talk to me about where we—I understand about the Fed and not raising rates, and I didn’t get a warm fuzzy [feeling] coming out of that meeting. Not just the bad guys, but Warsh has always been a hawk, which is not, you know, there’s something—I’m kind of a hawk too, but in this situation I think it’s throwing gasoline on the fire. Now—
DR. NAVARRO: Look, to be clear, what you want to be a hawk about is like William McChesney Martin, my favorite Fed chair back with LBJ. You know, it’s like the guns versus butter stuff. Like, LBJ wanted to fight a war, but he wanted to just keep doing the Great Society. Like, and so he had a big fight.
BANNON: But Martin didn’t stop him.
DR. NAVARRO: Martin—the hell he didn’t.
BANNON: How?
DR. NAVARRO: He wouldn’t loosen up the money and accommodate everything. And so LBJ had to put the surcharge on and yada yada yada. And that helped trigger the problems in the Seventies, because LBJ held back. But let me give you the—
BANNON: No, Martin didn’t do enough because that’s what made Nixon—Nixon and these whack jobs got us off the gold standard. Everything’s bad in life in the United States—
DR. NAVARRO: Yeah. There is that.
BANNON: —goes back to 1971.
DR. NAVARRO: You should write a series about that.
BANNON: They did it over a weekend. “The End of the Dollar Empire.”
DR. NAVARRO: Thank you. Am I good?
BANNON: Thank you. You’re good, you’re good. You still remember. I take it back, Bonnie. He’s still got his fastball. Every now and again it comes through.
DR. NAVARRO: So let me give a little hope here.
BANNON: Please.
DR. NAVARRO: Because, look, the fundamentals of Trump policy are extraordinarily good for growth. What we’re in now is something like the Nineties where we have a secular technological trend that is going to push productivity significantly, and that’s going to help. And there’s all this associated investment. But more importantly—more importantly—
BANNON: Hang on. Full stop. Hang on. Productivity is going to have humans involved?
DR. NAVARRO: There is a big problem with that. And I’m getting to that. I’m getting to that, my brother. Which is why we’ve got to keep that border closed and deport, I don’t know, what?
BANNON: This reminds me, by the way, in the Roosevelt Room—
DR. NAVARRO: I used to interrupt you. We’re shifting roles here, brother.
BANNON: We had all the fights with Gary Cohn—
DR. NAVARRO: Yes.
BANNON: And Steve Mnuchin.
DR. NAVARRO: Yes.
BANNON: They would get so nasty in the Oval [President] that the President would say, ‘Hey guys, fellas, can you take it out and go—you just open the Oval and right across the hall is the Roosevelt Room.’ We’d go into some of the most brutal, nasty knockdowns.
DR. NAVARRO: He did that once. I remember that. Yeah.
BANNON: Because it got too heated.
DR. NAVARRO: Go settle it. Yeah.
BANNON: No, because in these huge fights, around the Resolute Desk—
DR. NAVARRO: See—yes.
BANNON: All of a sudden Navarro would pull up a chart, these huge charts, and we’re going, ‘What the hell is this?’ And the huge chart would make a case for his position. And President Trump loved the charts. He goes, ‘You see, that’s what we’re doing.’ And Mnuchin and Cohn and the globalists’ heads would blow up.
DR. NAVARRO: Head woulds explode.
BANNON: Okay.
DR. NAVARRO: But look, we’ve got the technology giving us growth and productivity help. We’ve got the tariffs, which are the big wall to protect Americans from the unfair trade, which is attracting all sorts of investment. And we’re seeing that happen in real time where we start with a surge in construction jobs, because you’ve got to build the factories first. And then once you do that you get the manufacturing. So, we’re seeing all of that in the data. Surge in construction. Last five months, all of the manufacturing trends have been up. So, that’s all good. And contributing to that has been the Big Beautiful Bill provision for a-hundred-percent expensing when you build a factory here and you manufacture here. So, all of that’s showing up in the data. Now, we’ve got to be really careful here. It’s like we’re having good growth, but we’re not having great growth, partly because the Fed didn’t lower interest rates. And now because we’ve got the headwinds from Iran. And this is going to be a cautionary time. But the best thing we’ve got going for us is the strategic energy dominance on top of all that. Steve, do you know how much—we produce more than Saudi Arabia and Russia combined. I mean, I can’t even wrap my head around that. Because the first time I had a job in Washington was about a mile from here at the Department of Energy. And I was the guy studying, you know, how are we going to get off foreign oil? And I never dreamed that there would be this thing called fracking. So, it’s going to be tough. I think that the messaging, we’ve just got to keep talking about the economy, and that’s kind of what I try to do every day with these videos and parsing the data.
BANNON: They’re great. Let me just go back and ask so that people can understand this. The whole purpose of both the tariffs and the Big Beautiful Bill on the supply side was to return high value-added manufacturing jobs to the United States. So, once again—
DR. NAVARRO: And mid-value.
BANNON: Mid-value. But we became, you know, the John Gardner sof the world with the 50, the five employees, 20 employees. That’s the key to it.
DR. NAVARRO: There’s low-value stuff you need too that are part of the supply chain.
BANNON: Yeah. I got it.
DR. NAVARRO: It’s not just about jobs here. That’s economic security. National security is the offshore non-resilient supply chains that we’ve got to bring back. Go ahead, sir.
BANNON: No. But are we making progress—are manufacturing jobs in your data still coming back?
DR. NAVARRO: Last five months, ISM Manufacturing Index, which is my holy grail when it comes to that—
BANNON: What is that? Explain to the audience what that is.
DR. NAVARRO: The ISM Manufacturing Index is a zero to 100, what they call a diffusion index. If it’s over 50, it means the economy is expanding in the manufacturing sector.
BANNON: Good things. Yes.
DR. NAVARRO: If it’s under, it means it’s in recession.
BANNON: We had a lot of under fifties under Biden.
DR. NAVARRO: And it has things like—it’s like counterintuitive. Like, one of the—it’s got something like 10 indicators. And it’s like one of the indicators is what’s the length of time it takes to get a delivery, okay? And they get all the purchasing managers around the world. So, it’s like, if it’s a longer time—
BANNON: Is it above 50?
DR. NAVARRO: If it’s a longer time, that means that things are good. Because it’s taking longer to get this stuff. They’ve an employment part. They got a pricing—
BANNON: Is the ISM above 50 right now?
DR. NAVARRO: Yes. And for the last five months—it finally got above 50 five months ago. It hadn’t been above 50 since August of 2022 in the Biden years. So, think about that, Steve. We’ve got the demand-pull inflation, just fiscal irresponsibility. They’re throwing all sorts of money, but we’re not making stuff, right? So, it took until five months ago, it took, like, a year of the Trump administration to crank stuff up.
BANNON: You’re the Trade Czar. Make the case right now to the War Room Posse that the tariffs have been—I just heard Ossoff the other night, the guy in Georgia who’s very impressive the way he’s running. But he comes out in a litany of bad things. He goes, Trump is pro-tariff. Now this is a left-wing Democrat. It’s supposed to be a populist that says, he says Trump’s pro-tariff, that tariffs hurt working people. Make the case right now where we are on tariffs.
DR. NAVARRO: The central thrust of theirs is tariffs cause inflation. But they don’t. And we know that from the first term. The whole argument is very simple. It’s like if China or Germany or Japan or Korea are exporting a ton of stuff to us and their economies heavily depend on that growth, the last thing they’re going to do is simply raise their own prices when we slap the tariff on them. This is what we call a tax incidence question. Right? And in tariff land, it’s which country bears the burden. So, we learned in the first term that tariffs don’t cause inflation. Why? Because we put on a bunch of tariffs and there was no inflation. And it was like, no, they’re going to eat it. So, what Ossoff is doing is conflating the inflation we’re seeing, for example, from the energy-price shock because prices were coming down. Let’s not remember that.
BANNON: And growth.
DR. NAVARRO: Until the war broke out, core and non-core [inflation] were going steadily down and approaching two [percent].
BANNON: The war didn’t break out. Okay, let’s be honest. It wasn’t like Pearl Harbor. That’s a topic for another day.
DR. NAVARRO: Did I say break out?
BANNON: Yeah, you said ‘the war broke the war out.’ Yep.
DR. NAVARRO: Until the war.
BANNON: Until the war. Okay, hold it. Let’s go back. You had Bessent and he says it all the time. The inflation was coming down to around two.
DR. NAVARRO: Yeah. It’s beautiful.
BANNON: And you started to have the growth.
DR. NAVARRO: Yeah.
BANNON: You’re starting to get traction.
DR. NAVARRO: Yeah.
BANNON: Make the argument again for people. The component pieces of Trumpnomics is full-spectrum energy dominance—
DR. NAVARRO: Yeah, it’s the regulatory burden.
BANNON: Right.
DR. NAVARRO: Okay? Deregulation—
BANNON: Deconstruct the administrative state.
DR. NAVARRO: Right. It’s the tax cuts, it’s—
BANNON: The supply-side tax cuts, the big Big Beautiful Bill. So, I’ve got two.
DR. NAVARRO: Yes. It’s the tariffs—
BANNON: I’ve got three
DR. NAVARRO: —for fair trade, and it’s strategic energy dominance.
BANNON: Okay.
DR. NAVARRO: And all of those—
BANNON: All four of those—get me back to 2019.
DR. NAVARRO: Are virtuous.
BANNON: Virtuous. I’m getting a virtuous circle.
DR. NAVARRO: They’re the mirror image, right? The anti-stagflationary shock. They’re positive supply-side stimulus. When you get positive supply-side stimulus, you get deflation and you get—you get growth. Okay? And I don’t mean deflation in a bad way. I mean, it’s like you can go forward. That was the mistake Powell made in the first term. We started to go and grow strong. We’re going two percent. We’re getting over that. Remember the Obama years was like the new normal was one-percent growth.
BANNON: Exactly. Yep.
DR. NAVARRO: We start getting into two, getting over two, Powell’s going—
BANNON: Under three-percent growth, the model doesn’t work. Right? You’re going to continue to have high unemployment. It’s going to be terrible. You’ve got to get—
DR. NAVARRO: Well, under three-percent GDP growth, what you—you’re not going to be able to pay down your national debt. And that creates all problems in and of itself. But the point, Steve, is Powell saw us getting above two—
BANNON: This what I meant by saying—this is why I said the model doesn’t work.
DR. NAVARRO: Yeah, he freaked. I mean he like, ‘no, we’ve got to raise rates.’ I mean, what the—what are you doing, Jay Powell?
BANNON: He was Trump Derangement Syndrome.
DR. NAVARRO: He was—yeah, I know. It’s just, don’t get me started on that.
BANNON: And trying to help Obama. Trying to help Biden.
DR. NAVARRO: I mean the Fed—look, okay. It’s just, they say it’s got to be independent. They say it shouldn’t be political. They’re so political and so dependent on politics. This is, like, the worst Fed I think I’ve seen ever in that sense because they’re dealing with very significant problems in it in very insignificant ways.
BANNON: I don’t want to ask you questions that are going going to in trouble, so I’m not going to ask you—
DR. NAVARRO: Don’t do that.
BANNON: No, I’m not going to do that.
