Russia is now facing the kind of economic disaster that brings governments down

This is the same as what America faced during the 2008 financial crisis — except Russia’s just been cut off from implementing any of the rescue plans the US was able to enact to save itself

President Putin's spokesman said the American plans are 'another very serious step towards exacerbating tensions on the European continent'

The late Senator John McCain used to say Russia was a gas station masquerading as a superpower. We’re about to see how correct he was.

Spoiler alert: He was really, seriously correct. And aside from some impact on gasoline prices, the war and the punishing sanctions that the US and the European Union imposed on Russia won’t hurt American consumers much. Western financial markets may be another story, at least for a while.

There are three keys to understanding this story. One is the remarkable unity the rest of the world has shown in rejecting and resisting Russian president Vladimir Putin’s invasion of Ukraine. The second is the shocking narrowness of Russia’s economic base, and how utterly it has wasted an oil-and-gas-based prosperity that is sure to give way to renewable energy by about 2040, meaning the petro-profits should have been reinvested in a next-generation industrial base more lasting than yachts now being hidden from western authorities.

And the third is what happens when credit is utterly cut off to a large economy, the way the west has effectively cut off not only Russian companies and oligarchs, but even frozen the $630 billion in reserves Russia’s central bank had planned to use to prop up the rouble, hold interest rates down, and let ordinary Russians access credit and payment systems for everyday purposes.

Hour by hour, new sanctions are announced by companies and governments alike. Apple is out of the Russia business, meaning even Apple Pay doesn’t work in Moscow. Aeroflot flights are personae non grata at European and American airports, and Boeing won’t sell the Russian airline Aeroflot new parts for maintenance. Swiss banks, which tolerated the Nazis, are now cutting off Russia’s oligarchs.

To oldish financial hands like me, the situation in Russia is like our worst nightmares during the 2008 financial crisis. Debt markets were seizing up, equity markets fell 49 percent, and car sales also dropped by about half. Big financial institutions like the insurer USF&G and the investment banks Bear Stearns and Lehman Bros. collapsed, and everyone else was threatened.

Among ourselves, we talked daily about whether Goldman Sachs, Morgan Stanley and Merrill Lynch would survive or not. GE Capital was at risk of failing. Automakers were bankrupt or close, with consumers afraid to buy and having trouble getting credit even if they wanted to. And the insolvency of Fannie Mae and Freddie Mac — the two government-backed companies that buy mortgages and mortgage securities to support the housing market — threatened that market as Americans lost $6 trillion in housing wealth, according to the Federal Reserve Bank of New York.

And then the government stepped in.

The Federal Reserve flooded the economy with money and credit. Like a scene out of Hamilton, it worked. “The union gets a new line of credit, a financial diuretic,” Lin-Manuel Miranda wrote in one of his famous songs – he was talking about a much earlier plan to build America’s financial base through a strong central government.

The Treasury kept Fannie and Freddie standing until housing markets recovered, and Washington’s backing gradually let banks begin lending freely again. Congress was able to spend what it took to keep the auto companies standing and to stimulate the economy by early 2009.

The 10 percent unemployment rate drifted lower – slowly, because much more should have been done, but lower. If nothing had been done, 20 percent would have been a real possibility. It was that bad.

Russia now is in the position America was in October 2008. But it has no credit, and no government with the means (and access to world credit markets) to do what Washington did in 2008-09. And there’s a pandemic.

Indeed, all the forces Russia needs help from – outside governments, financial markets (especially debt markets) and the private sector – are arrayed against them. The 30 percent drop in the ruble in the last 10 days is a sign that markets know how bad things will get. And interest rates on mortgages have doubled. It’s not hard to guess what happens to home sales.

In an ordinary country, you’d hope the so-called “real economy” would save you from the whims of the market. In Russia, you ask: “What real economy?”

Yes, the oil and gas industry is the world’s third-largest, generating more than $300 billion in export income. But the next biggest export from Russia is – get this – charcoal briquettes, according to the Observatory of Economic Complexity, an open-source tool for analyzing economies developed at the Massachusetts Institute of Technology.

Imagine a US economy consisting of Exxon Mobil at the top, and the next biggest company being Kingsford, proud enabler of backyard barbecues since 1920. Kingsford isn’t even a company – it’s a division of Clorox, accounting for a whopping 9 percent of Clorox’s revenue. To be slightly fair, Russia sells a lot more charcoal briquettes than Kingsford does, but really. No Google or Facebook, no Amazon or Apple, no Home Depot or Wal-Mart, no Intel or AMD – you get the picture.

And now that economy, 60 percent of the size of California’s but supporting three times more people, is starved for capital. No wonder OEC says Russia’s fastest growing export is gold bullion, as people at the top try to stash capital elsewhere. Tim-ber!

In America, gas prices will rise for a while, extending gains that stem from a drop in US production since 2019. Some combination of more OPEC production, recovering US production, and crude from Washington’s Strategic Petroleum Reserve will see to that. Supply chains may get stretched – a little – but not much that we need comes from Russia. Unless China decides now is the time to invade Taiwan and throw away the worldwide economic machine it has spent decades building, America will be fine.

As President Joe Biden said in his State of the Union address, in a year it will be stronger than it is now. Markets agree: The S&P 500 stock index has recouped nearly all of its initial losses after the Ukrainian invasion, and US interest rates are slightly lower. Russia is another story.

Predicting how an autocrat like Putin protects himself and his power is always a mug’s game. But governments have fallen – or worse – over much less than what Russia is in for.