Watching the Russian Economy Collapse before Our Eyes  

A customer hands over Russian rouble banknotes and coins to a vendor at a market in Omsk, Russia, October 29, 2021. (Alexey Malgavko/Reuters)

On the menu today: The good news is that, while the long-promised “swift and severe” sanctions from the U.S. and its allies took a while to arrive, they are quickly and intensely battering the Russian economy. The bad news is that we’re quickly and intensely battering the Russian economy, and it seems prudent to ask just how much economic devastation we want to inflict upon a country with roughly 4,500 nuclear warheads. A lot of ordinary Russians are going to pay the price for Vladimir Putin’s aggression and malevolence — and European history has some vivid examples of humiliated countries coming back from a war defeat to become an even bigger problem later.

‘Swift and Severe’ Sanctions Batter Russian Economy

The “swift and severe” sanctions of the U.S. and its allies took a while to arrive, not taking effect until 96 hours or so after the first steps of the Russian invasion of Ukraine.

But to give credit where its due, once those sanctions did kick in, the consequences were indeed intense:

  • At one point, “The ruble plunged to a record low of less than one U.S. penny” — at one point 118 rubles to a dollar, before recovering to 84 rubles to a dollar.
  • The Economist noted, even with the recovery, that it was “one of the largest one-day slumps in the Russian currency’s modern history, similar in scale to the one-day declines recorded during the worst moments of the country’s financial crisis in 1998, when Russia defaulted on its debt. In mid-morning in Moscow, the Russian central bank raised its key interest rate from 9.5 percent to 20 percent in an effort to stem the ruble’s slump, and the country’s finance ministry ordered companies with foreign-currency revenues to convert 80 percent of their income into rubles.”
  • One analyst on CNBC summarized that the Russian currency has “pretty much lost all value outside of the country. . . . To me, it doesn’t really feel like we’re looking at or at least we’re going to see the bottom in the ruble here. I think there still is plenty more room for weakness to come.”
  • The Moscow stock exchange initially delayed its opening this morning, then declared it would be closed for the day.
  • Russians no longer have faith that their banks will remain solvent: “Russians waited in long queues outside ATMs on Sunday, worried that bank cards may cease to function, or that banks would limit cash withdrawals. ‘Since Thursday, everyone has been running from ATM to ATM to get cash. Some are lucky, others not so much,’ St Petersburg resident, Pyotr, who declined to give his last name, said.”
  • CNN reports that, “One early casualty was the European subsidiary of Sberbank, Russia’s biggest lender that has been sanctioned by Western allies. The European Central Bank said Sberbank Europe, including its Austrian and Croatian branches, was failing, or likely to fail, because of ‘significant deposit outflows’ triggered by the Ukraine crisis.”

Using the economic-sanction equivalent of a superweapon against Russia is a double-edged sword. Yes, this will hit Putin and the oligarchs and all of Putin’s lackeys and hangers-on. But this is also going to hit the average Russian, hard. The average Russian didn’t have much say in whether to invade Ukraine; there are some signs that the average Russian didn’t even believe that Russia would invade until the attack started.

After witnessing the outrage of Russia’s massive-scale, intensely destructive, utterly unprovoked assault on Ukraine, there’s an understandable desire to punish Moscow, to impose such devastating consequences that for three generations, no Russian leader ever dares to try this kind of reckless stunt again. We want them humbled, defanged, and neutralized. That’s not vengeance, that’s justice.

But it does seem prudent to ask just how much economic devastation we want to inflict upon a country with roughly 4,500 nuclear warheads — 4,477 warheads to be precise, with “about 1,588 strategic warheads [which] are deployed on ballistic missiles and at heavy bomber bases, while an approximate additional 977 strategic warheads, along with 1,912 nonstrategic warheads, are held in reserve.”

For a long stretch of the post-Cold War years, the West feared some Russian military official selling off a nuclear weapon or components or radioactive materials to dangerous forces. Forcibly impoverishing the country with the largest stockpile of nuclear weapons in the world feels like a formula for more trouble down the road.

History doesn’t give us simple lessons. One lesson that is clear is that once you’re in a war, you must win the war as thoroughly and completely as possible. If Russia doesn’t suffer severe consequences for starting this war, either Putin or one of his successors will try something like it again. It is hard to envision how any of us can feel like there is a good chance for a lasting peace so long as Putin runs Russia. Sure, perhaps this particular battle halts with a ceasefire in the near future, with minimal Russian territorial gains. But what’s stopping Putin from trying again in a year, or next year, or a few years from now? And as Judson Berger fairly asks, how mentally stable is Putin these days? How long can the world live with a paranoid, delusional autocrat with the ability to launch nuclear weapons? (Right now, in his rare public appearances, Putin is so isolated and seated so far from anyone else that even CDC director Rochelle Walensky would tell him he’s being excessively cautious.)

But one painful lesson of World War I was that if victorious nations humiliate the defeated nations, the defeated people may simmer in resentment and suppressed rage for a decade or so and then elect some demagogue who rides those long-stewing hatreds to power, creating even bigger problems. We need to come out of this conflict with a defanged Russia that doesn’t blame the West for its suffering and that isn’t just going to look for another manipulative strongman to come along and promise them a return to past glory.

On the military front, the news is mixed. The Ukrainians continue to demonstrate jaw-dropping courage and gutsiness, and evidence continues to mount that Russia has bitten off way more than it can chew.

On Sunday, a senior U.S. defense official offered an update:

We do continue to see Russian momentum slowed; they continue to face a stiff resistance. We continue to observe that they have experienced fuel and logistics shortages. This is most particularly acute in their advance on Kharkiv. Although we believe that they are facing some logistics challenges as well on their advanced down north to Kyiv. We still, as of this morning, have no indication that the Russian military has taken control of any cities. . . . The airspace over Ukraine is still contested. And that means that the Ukrainians are still using both aircraft, and their own air and missile defense systems, which we believe are still intact and still viable, though they have been, as I said yesterday, there’s been some degradation by the Russians.

By the way, if you want an excellent analysis of why and how the Russians are not maximizing their military advantages, read this piece by Mark Antonio Wright, our executive editor and an infantry officer in the U.S. Marine Corps Reserve. (All views are his own and do not necessarily reflect those of the U.S. Marine Corps or the Department of Defense.) In fact, read everything Mark writes.

The bad news is that Russian forces appear to be moving into position for a longer-term siege of Ukrainian cities, Belarus is now formally entering the war on the side of Russia — it was already allowing Russia to attack from its territory — and a three-mile-long convoy of tanks and military vehicles is approaching Kyiv from the north. Russia isn’t afraid to turn this into a long, ugly slugfest, with a lot of civilian casualties along the way.

And while Putin elevating Russia’s nuclear arsenal to a higher state of alert may just be the usual saber-rattling . . . Russia has about ten times as many smaller “battlefield nukes” as the U.S. does, and Russia’s published military doctrine allows for nuclear-weapons use “in response to large-scale aggression utilizing conventional weapons in situations critical to the national security of the Russian Federation.” In other words, if Russia feels like it is losing a critical battle, it can use small nuclear weapons to halt the enemy’s assault.

From our perspective, that’s unthinkable; setting off even the smallest nuke releases deadly amounts of radiation and makes that immediate area uninhabitable for generations. But it is hard to get a sense of what is unthinkable to Putin these days. In defiance of the historical record, Putin insists that Ukraine is not really a country and has no right to exist as an independent state. U.S. defense strategists must be contemplating whether Putin is mad enough to believe that if he cannot annex Ukraine, his best option is to nuke parts of it into oblivion.

Sometimes, you can just tell it’s a Monday, huh?

ADDENDUM: For no particular reason, I am reminded of how, when conservatives and libertarians noticed the Soviet propaganda posters on the walls of the house of White House press secretary Jay Carney, we were accused of being paranoid and humorless and reading too much into Carney’s art selection . . . and then Carney went along with Chinese censorship requests as an official at Amazon.

Hammer and sickle Soviet propaganda doesn’t seem quite as kitschy and cute as it used to, now does it?

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