RUSSIA REALLY IS IN AN ALL ENVELOPING ECONOMIC MESS
ORIGIN
The problem the Russians are facing now began in July. In 2020 to help Russians back on their feet and to boost the flagging construction industries and property markets, Russia introduced a fixed rate 6% mortgage rate, effectively subsidized by the states oil and gas revenues.
Interest rates are now 21% and expected to rise to between 22 & 24% this month. A floating interest rate mortgage averages between 27% and 42% from a Russian bank now. In July, facing a growing uptick in the number of these mortgages being taken out as higher pay finds its way into the market, the government found itself inundated with mortgage applications. The housing boom in Russia peaked in 2021 then dropped until May 2022, when it roared back.
To give you an idea of the size of the issue Russian housing increased by 80 million square meters in 2016, and by June this year it was running at 120 million. House prices were actually falling a little because of over supply and high interest rates putting many off, just in case the subsidies ended.
In June the low interest rate deals were ended permanently. The government had spent almost $100 billion on them since 2022 and they can no longer afford to underwrite them.
That means your mortgages have gone up from 6-8% to something like 30%+ almost overnight. Unsurprisingly the construction industry has almost collapsed in six months, prices have fallen on housing and millions of people are facing massive mortgage rate rises.
And all of this is made worse because including oil and gas, the property market is 10% of Russian GDP. If you took oil and gas out of the equation its near 30%.
So in a matter of months, while the Russian state is saving itself billions of rubles in subsidies, its placed millions in a horrific debt spiral, endangered banks facing potential arrears and delinquencies and caused a huge downturn in the support industries that make up the housing market. Everything from bricks to sofas and paint, bathroom manufacturing, kitchens and so on.
This is yet another knee-jerk reaction to the devaluation of the currency, the vast amounts the war is costing, and the impossibility of funding economic development when the war is so fundamentally cost intensive.
Housing has been a ‘normal’ pillar of civil society – it shows that everything is OK to normal Russians, that the war isn’t impinging on them. Now the cost of it is going to hit many more people very fast and their ‘normal’ existence is going to be faced with shocking degrees of emergency savings to keep a roof over their heads.
Bit by bit, the war is coming home.
The Military Analyst 
The death spiral has started some time ago, but now it is spinning faster and out of control.
What do we hope to reach – Putin’s demise in an internal revolt which would resolve quite a few issues.
Keep the windows open and the balcony doors unlocked.
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Thank you.
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Gods speed for your Father. I had taken care of both my parents in their last years. Especially for my father as you said “all his friends had passed away”. But those were very important times that my father and I had together.
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Thank you.
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Thank you for the good news.
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The Central Bank of Russia most likely allowed the RUB to devalue by an amount likely approved by Putin, in consultation with his KGB mate at Rostec, Chemezov (or whatever his name is).
Russia still receives more from exports of oil and gas than it spends on imports. Imports and exports are all transacted in $US equivalents – either RMB (pegged to a range of $US) or other currencies, with the commodity priced in $US. Hence, letting the RUB devalue by a controlled amount allows the RF government to make payments in RUB, but the payments have less buying power, because the devaluation will cause inflation, since almost everything now has an import component in the price. Fuel is at least partly imported now. The devaluation effectively transferred money from the general population to the government and elites that hold and deal in $US equivalents. They’ve taken value from the economy to fund their war, because they can’t borrow; they can’t sell; they can’t produce. It was a desperate move, not overtly directed by the government, nor announced, but when you read the tea leaves and take account of the extent to which Putin’s henchmen run roughshod, they either initiated it, or approved of it and backed it.
Putin has already increased taxes – that takes money out of the general economy. Interest rates take money out of the general economy for those with debt. They put money back for those with cash on deposit…but they typically take more out than they put back in, so tax by stealth but the rumours suggest that most Russian banks are short of their capital requirements, so when loans default – which is inevitable given the interest rate trajectory – the house of cards will fall. Banks tend to be interconnected in a multitude of ways, and the only buffer to broad collapse are the capital reserve ratios of the individual banks.
Russian businesses are finding that their average debtors and creditors settlement times are slipping, which places greater stress on their working capital and weakens balance sheets…
Russia still exports much more than it imports, but it the oil price drops, or Ukraine can take out another 10% of Russian refining capacity, or destroy enough oil storage to cause them to have to shut down supply lines, it will reach a tipping point, and it’s going to be ugly for all of those stupid Russians who did a deal with the Tzar to stay out of politics and leave it to the (KGB) ‘leader’…
Keep the popcorn warm. There is not an orange haired criminal alive who can save Putin.
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Thank you for sharing your insight.
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A very satisfying read.
Thank you for providing this most enlightening channel. Much appreciated.
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EVANS-PRITCHARD concurs.
https://www.telegraph.co.uk/business/2024/12/10/putins-regime-may-be-closer-soviet-collapse-than-we-think/
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Well at least I know I’m on the right track!
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