Everything is Fine Until it Isn't

A failing economy can look robust and healthy, right up to the moment that it collapses.

At the beginning of the fourth quarter of 2025, the indications that the Russian economy is under increasing stress continue to accumulate. When new, punitive sanctions were placed on Russia in March 2022, many, including some economic experts, expected an almost immediate financial collapse. It’s been 3.5 years, and on the surface, the failure appears further away than ever.

There were contrarian voices in 2022. Some experts believed the Russian economy could operate relatively normally for 18 to 24 months, assuming its war of aggression against Ukraine dragged out that long. By mid-2023, many of their peers quietly joined them. There was a growing consensus that if the Russia-Ukraine War continued into 2026, the Russian economy would start to feel real pain by the end of 2025.

Russia had spent years preparing its economy for the so-called “special military operation.” Moscow expanded its National Welfare Fund to record levels, accumulating over $200 billion in reserves. Harsh sanctions were already in place in 2014 when Russia invaded Crimea, and were tightened in 2018 and 2019. The Kremlin had already learned how to bypass the rules. Additionally, many experts underestimated the expertise of Dr. Elvira Nabiullina, the governor of the Central Bank of Russia.

Fast forward to October 2025, and the predictions from 2.5 years ago are appearing accurate. Dr. Nabiullina has publicly stated that the Central Bank has exhausted its options for propping up the economy. Two-thirds of the National Welfare Fund has been spent, and the remaining assets are frozen through the end of 2025. Tax revenue is well below the Ministry of Finance’s predictions, and the ruble is overheated.

Russia’s national debt is poised to double by the end of 2025, as Moscow sells an unprecedented volume of OFZ 10-year bonds in the fourth quarter. The sales aren’t the problem. The primary buyers are Russian banks, and the yields are so high, the long-term debt servicing costs exceed the funds they generate. In the future, if the Kremlin defaults on its bond debt, the assets held by Russian banks will be wiped out. If Moscow needs to negotiate a restructuring of the debt, it essentially will have to negotiate with itself.

In September, Russia’s GDP growth went negative, despite being propped up by Cold War-level military spending. Rosstat reported that 80% of Russia’s economic sectors are now in recession. Stealth unemployment - people who are underemployed or working part-time while seeking full-time work - has exploded. Business, mortgage, and auto loan defaults are skyrocketing. Rosstat reports an official inflation rate of 8.1%, which is disputed even within Russia. Real-world data shows that consumer inflation is closer to 16%. A toxic economic condition known as stagflation is beginning to take hold.

However, Russia’s economy still hasn’t collapse. The Kremlin and its supporters revel in the schadenfreude. Moscow isn’t just declaring that the economy is outlasting the dire predictions. The propaganda talking points claim it’s never been better.

What is the truth

The truth is that a crumbling economy can not only appear to be functioning and healthy, it can continue to function until the exact moment it doesn’t. For most people reading this, the closest you’ve come to experiencing a catastrophic collapse was September 15, 2008.

If the Bush administration had allowed Lehman Brothers to fail, U.S. credit markets would have completely frozen, even among financial institutions. President George W. Bush was advised that if nothing was done, within 36 hours ATMs would be empty, credit cards would stop working, and no one, regardless of their wealth and credit rating, would be able to get a loan. He was warned, U.S. cities would be in flames due to riots. Sixteen years later, the cure for the 2008 economic crisis remains a drag on many economies worldwide, including the United States.

In the U.S., the average middle-class citizen didn’t feel the worst pain of the 2008 financial crisis until months after Lehman Brothers went bankrupt.

Everything is fine until it isn’t.

While autocrat Vladimir Putin and his Kremlin proxies insist that sanctions have had no impact and the economy is strong, Russian negotiators continue to demand that all sanctions be lifted.

The Central Bank of Russia sets the value of the ruble, which has not been tied to global currency markets for almost two years. The number of business and asset seizures by the state has accelerated in 2025 under the banner of anti-corruption programs. The Russian damper mechanism, which is used to encourage domestic fuel sales and stabilize prices, no longer works. Russia’s commercial air fleet, primarily comprised of stolen Boeing and Airbus aircraft, is reaching a breaking point. Russian Railways’ loading rates continue to fall. Auto sales are down 50% and Russia’s largest imported brand, Chery, which controls 20% of the market, announced it’s withdrawing.

Some Russians can see what’s coming

Banking data shows that since the spring of 2025, Russian consumers have been withdrawing approximately $2.5 billion a month from their deposit accounts. It’s not a bank run, but it is a warning sign of a loss of confidence.

Since 2022, Russians have purchased 282 tonnes of physical gold, according to a report by Bloomberg, citing data from Al Banyan Tree Research. That’s more gold than Austria holds in its state reserve. The rush to gold was even encouraged by Moscow, which waived VAT in 2022 to help prop up domestic production.

This isn’t the good economic news that it appears to be. Gold sales tend to increase during periods of financial uncertainty, historical data shows. Beyond the record gold sales, another sign suggests that some are preparing for tough economic times.

Russians are increasingly transferring their gold purchases outside of the country to the point that it has become a problem. In September, the State Duma drafted a law that would limit individual gold exports to no more than 100 grams, about 3.25 troy ounces. The law would also make it easier for the state to confiscate gold and other assets.

Think of economic collapse as a volcano

As an analogy, imagine a society living in the shadow of a volcano that has never erupted in recorded history.

Over the years, there have been periods of small earthquakes, and once, years ago, a puff of steam was observed. Currently, there’s another wave of small earthquakes, just like in the past.

But as time passes, the quakes become more frequent. A few of the jolts feel stronger than before. Outside, everything continues as normal.

Yesterday, you overheard someone who claims to live near the volcano say that there was a brief, odd, rotten-egg-like smell.

“Did you hear that a hole opened up on Old Man Jenkin’s farm and he got steamed alive?”

“Yes, I heard that. They said on the news that he was illegally digging recently.”

“I missed that. Someone said it might be connected to the earthquakes.”

“Anyone saying that is just fear-mongering. We’ve always had earthquakes.”

“Yes, you’re right. Let’s get a coffee. I’m so tired today. Last night’s quake woke me up.”

“Oh, look. I just got this news alert. Rich Richington, billionaire, just put his volcano-side villa up for sale.”

“Guess he can’t handle a few small shakes! Ha! Ha! Those rich people are always so soft.”

And so it goes.

Then, out of nowhere, the ground rocks, there is a deafening roar, and that volcano that “always did that” violently explodes.

You walk outside to look and see the glow of lava starting to pour down the sides. A huge dark plume of toxic gases and ash rises skyward. Volcanic lightning streaks across the sky.

But that volcano is still far away. Everyone tries to go about their lives like they did the day before. Some people leave, but they’re overreacting.

By the next day, the ash rain hasn’t stopped, and it is accumulating on everything. Bits of pumice fall from the sky, and the smell of sulfur is overwhelming. The sky is dark even though it’s the middle of the day. Everything is closed down. You check the Internet, which isn’t working very well, and the government assures you that it is doing everything it can to respond to the emergency.

The day before that volcano exploded, everything was normal. Everyone went about their lives. Every part of a functioning society was working.

That’s what an economic collapse looks like.

Everything is fine until it isn’t.

🟩 Healthy, strong economy with a solid foundation
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🟨 Russia is here
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🟨 September 15, 2008, United States
🟨 The Great Depression of 1929-1939
🟥 Volcano