Is OpenAI the Achilles’ Heel of the US Economy? | The Weekly Wrap

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**Steve Eisman** (1:00)
The 10-year yield almost brushed against 4.8 percent, and there is no question that at some level of interest rates, the market will correct. The entire US economy hinges on the success of AI. The amount being spent is just so large that were it to stop, the economy would go into a recession almost immediately. I think that OpenAI is potentially in trouble. Things are not moving in the right direction. So, I'm starting to think that the demise of OpenAI could push the US into an almost immediate recession. It's not too early to think about the ramifications of OpenAI failing. So, let's think about it.
Hi, this is Steve Eisman. Welcome to The Weekly Wrap. This is for the week ending Friday, September 4, but recorded Thursday night, September 3
First, I will take a moment to thank everyone who has joined me on Substack and subscribe to both Free and Premium. We'll be increasing our premium prices on September 7 at midnight to $20 per month and $200 per year. If you want to get the old pricing, subscribe now before Labor Day. Existing subscribers, your rates will not change if you stay subscribed. Thinking about switching to annual, now is the time to lock in the price at $107.99 per year for as long as you stay subscribed. If you are interested in being a Premium Subscriber and receiving daily comments on the market and economy, being part of a thriving community, receiving an extra weekly episode, including a two-part master class on analyzing banks which drops soon, and accessing all free episodes ad-free, consider subscribing before we raise the price on September 7 Over the past several months, we've gotten several requests from subscribers to interview Ed Zitron, the Substack Newsletter writer, who is one of the most famous critics of the entire AI story. So I'm pleased to announce that this coming Wednesday, September 9, on Premium, we will post an interview with Ed Zitron.

**SPEAKER_2** (3:02)
OpenAI and Anthropic to account for 48% of all of Google Cloud's revenues next year, which is bonkers. That means that Google Cloud's growth is based on whether these companies will pay them.

**Steve Eisman** (3:15)
We had an incredible conversation and covered every aspect of the AI story, its strengths, weaknesses, the financial shenanigans, and where and how it could fail. So please tune in. In this Weekly Wrap, I will discuss 1
War, oil, and interest rate news.
The increasingly insatiable need for commentators to predict a dystopian ending to the AI bubble. 3 Why I'm not there yet.
AI's insatiable need for CapEx is the major driver of GDP growth.
5
Is OpenAI the potential catalyst for a recession? And 6
Some recent events. So let's get started. This week, the war heated back up. And all prices spiked, thereby driving fears of mounting inflation. The 10-year yield almost brushed against 4.8%.
And there is no question that at some level of interest rates, the market will correct. What that level is, no one really knows. I thought that 4.5% was the Rubicon. And I was wrong. Is it 4.8% or even higher? I don't really know. But we are certainly getting closer. I'd also point out that part of the problem is the enormous amount of AI debt being issued. This supply is putting pressure on rates. And I'd also point out that Treasury Secretary Besson's recent attempt to reduce long-term rates appears to have already failed. One more point. Higher rates put pressure on any company issuing debt. However, higher rates are good for consumers who save and put their money in the bank or in a money market fund. Before we get to some of this week's events, I am going to spend some time discussing the desire by many commentators to call for the end of the world and what it would actually take to cause a recession. Now, one of the last great sitcoms on network TV was The Big Bang Theory. For those of you who never watched the show, it was about a group of friends who were science nerds. In the show, there was a minor character called Stuart. Stuart owned a comic book store that the main characters like to hang out at as they all loved comic books. Now, recently Chuck Lorre, the creator of The Big Bang Theory, created a new show on HBO called Stuart Fails to Save the Universe. In this new show, a catastrophe has enveloped the world and humanity now lives in a horrible dystopia. Stuart finds a machine that allows him and his friends to travel to alternative universes, constantly searching for a better place to live. Thus far on the show, every universe Stuart jumps to is just another form of dystopia. The show is quite funny but captures something essential. There is something about imagining a dystopian future that people find captivating. I've noticed that over the years since the GFC, whenever I am interviewed, the interviewer is almost begging me to predict the end of the world. How do I feel about that? Well, I predicted the end of the world once and believe me, it was no fun. I'm in no rush to predict the end of the world again unless I am really convinced that it's going to happen. But I'm not going to make such a prediction just because it will get a lot of press. There is no question in my mind that the entire US economy hinges on the success of AI. The amount being spent is just so large that were it to stop, the economy would go into a recession almost immediately. There are several commentators who are making exactly that prediction. They could be right, but right now the data does not support the end of the AI story, at least not yet. So let me point out where the points of weakness reside, because it's time to consider how the unwind could occur, what the catalysts are and what the impact could be. Now, there is no question that the large tech companies have transformed the dynamics of their businesses. They used to run businesses that threw off so much cash, they didn't know what to do with it. But because of the hundreds of billions they are each spending on AI CapEx, their cash flow has evaporated. And in some cases, they are raising both debt and equity to fund that CapEx. This is a topic of great concern. It gets a lot of press, but it is not necessarily the death knell of the AI story. After all, if, and it's a big if, AI generates new businesses and large returns on this CapEx investment, then the hyperscalers will be okay.