Ashley Elizabeth Miller

Putin’s Russian regime has long told its some 147 million citizens that the country’s economy can easily withstand the costs of waging war in Ukraine. But economists say this message is misleading, and a financial crisis looms.

The Financial Times reports on warnings issued by two key Russian players: Sergei Chemezov, chief executive of a state defense company called Rostec, “who warned that expensive credit was killing his weapons export business,” and Elvira Nabiullina, head of the central bank.

So what’s going on? Companies are borrowing money to keep their businesses afloat, a tough task in the fog of war, but the cost of borrowing—interest rates—is very high, over 20%. This is unsustainable. Economists say companies would normally falter in this climate, but Russia is supporting them to maintain a healthy veneer.

How? The government is using state-controlled banks to lend out money at low rates, on terms dependent on the borrower’s standing with the Kremlin. This creates an illusion of smooth sailing. Nothing to see here—Putin tells his people.

Outside observers, however, see what’s really going on: banks are NOT lending money from real savings or profits. Instead, Putin is printing money.

“In essence, Russia is engaged in massive money printing, outsourced so that it does not show up on the public balance sheet,” writes FT reporter Martin Sandbu.

Not only is Putin lying—not really a surprise—but he is hurting his country’s chance for a better future. (Oops. Also not news.)

Pouring printed money into the economy stokes inflation—when prices rise because of too much cash chasing too few goods.

To combat inflation, Russia can raise interest rates but, as I said at the top, the country has already done so, and to do so anymore would hurt ordinary people. Say, for example, those who purchased subsidized homes when interest rates were lower, before Russia invaded Ukraine in 2022, and now struggle to make payments.

Long story short: printing money causes inflation. It is an unsustainable strategy. Cracks will widen, and economists say Russia’s financial collapse is approaching—fast.