Russia Admits: Bankruptcy Is Around the Corner!

[00:00:06]We've all been broke, but have we all gone bankrupt? Vladimir Putin certainly has already rendered the Russian government broke. But it seems like he is now just weeks or even days away from bankruptcy. Better lock in, bro. Chew your strike gum or else things are going to get a whole lot worse for the Russian economy and the Russian war machine.

[00:00:30]Take a look. So the Russian government has halted bond auctions as it says government debt selloff complicates budget financing. This sounds don't let your eyes glaze over. This is important.

[00:00:40]Why? This is the government equivalent of swiping your credit card and having it be declined, right? But it's worse than that because where you can get 20 credit cards, right? You can put a bunch of stuff on the cards and play the balance transfer game. But if you're a government, you really can't do that.

[00:00:57]There is one vehicle you can use to raise money you don't have, and that is bond auctions. Simple. Bond auctions are when you say, "Listen, someone can loan me money, please." And what you do is you say, "I'm giving you the privilege of loaning me money. What on earth would you what interest rate do you think is right?" And every institution on earth, at least in this case, every institution that hasn't been sanctioned, bids for the right to buy Russian debt. And well, this has been an interesting journey for the Russian government because Russian debt or loaning Russian Russian money is how they plug in growing budget deficit.

[00:01:39]Right? In the United States, of course, we know that when we spend more than we make in taxes in a given year, we take on debt. government debt. And in the United States, of course, our government debt is at a pretty healthy interest rate. Our 10-year bond yields are about 4 and a.5%, which is actually historically high. And when your economy is growing at a healthy 3 and 12% clip, that actually that interest rate is pretty good. It reflects basically almost it's almost free money. Russia, they're, let's say, seen as less reliable than the United States, which is actually saying something. So, the Russian Finance Ministry has said, "We're actually no longer holding these bond auctions. We're no longer asking the world what interest rate they think they are willing to lend us money at because [laughter] they don't like the answer." And the ministry said it was halting its regular weekly auctions of government bonds known as OFZs. Quote, to facilitate the stabilization of market conditions.

[00:02:41]Listen, markets are almost always stable. You just don't like what they're stable at. It did not say when sales would resume, saying only they would restart later. Yikes. OFCs are the ruble denominated bonds underpinning Russia's entire financial system. Nothing alarming about this. They're the government's primary source of domestic borrowing to cover budget deficits while banks hold them to manage daily cash needs and foreign investors buy them for the returns. This sounds troubling. So the financial instrument that allows Russia to cover its budget deficits and allows Russian banks to it says manage daily cash needs guys. The daily cash needs are the needs of Russians to withdraw money from the bank.

[00:03:20]So, if you don't have money to withdraw from the bank, it sounds bad for the average Russian. And of course, foreign investors buy them to make a little scratch.

[00:03:32]Now, the it talks about the price of OFCs that have fallen. And this is you don't need to know this, but um the price of a bond and its yields are inversely correlated, right? It's six of one, a half dozen of the other high risk, right? cheap bonds that pay high interest. They're they're they're sort of the same thing essentially, right?

[00:03:53]They're high risk. If something if you know how much would you pay for a very a thing that you think might break, you're going to pay less for it. Uh so, let me show you how bad things have gotten.

[00:04:02]This is the 10-year interest rate chart for the Russian uh the Russian 10-year bond. And you see this number, it's currently trading at an insane 16.8%.

[00:04:14]This is the highest, as far as I can tell, ever recorded by the Russian Federation, a 17% yield, right? America was in full-on crisis mode when yields were approaching five, even 6%. These are three nearly three times that number. And it is prohibitively expensive for the Russian government. And you can see that the last time it was this high was in October of 2024, right? And you can see that basically they got a reprieve uh primarily due to increased optimism over Trump adopting a more pro-Russian stance. But you can see here now they realize that Trump's pro-Russian stance isn't actually helping the Russian economy in any way and that instead now that is priced like a country that is on the brink of collapse. Right? The only other countries, by the way, that have suspended their bond sales in this way are Lebanon, a country where 20% of the of it is occupied by a foreign power, uh, and the the capital city is actively being bombed. No irony there. And, uh, Haiti, I think, or or Eratraa, countries that are essentially failing states.

[00:05:31]the the Russian finance ministry had hoped by the way and needs actually uh to cover uh well the last four auctions I should say were cancelled or attracted no demand. It was it canled a late June auction because only about $130 million of bonds were bought by anybody at any price and it canceled another one July 1st, July 8th and July 15th scrapping the sale after receiving no bids at what it considered acceptable prices, acceptable interest rates. So it said listen the market said listen we'll rent you lend you money but 17% is not enough we need you to loan we need higher interest rates right so that imagines that we're probably looking at 19 18 19 20% interest for Russian government bonds okay that is on par with the worst American borrowers what they get charged by their credit card company and it's insane because unlike the worst American borrowers Russia has a gajillion barrels of oil. But as you can see, even more insanely enough, the oil price has been climbing. Now, admittedly, not as fast as global oil prices, which have gone for about 72 to 91 a barrel. Eurals crude has has had not quite the same um spike upward, right? It's trading only at about $68 a barrel. But this is because, as we have talked about that crude oil cannot power your car. It can't uh be turned into cooking oil or heating oil because crude oil is well crude. It's unprocessed. It's comes straight from the ground. It is literally and figuratively dirty. You have to remove all the contaminants and every place in the world has slightly different chemical contaminants. And that means that you have to build essentially a refinery to process one type of oil.

[00:07:17]Some refineries can do multiple. That's not important. But where do you think the refineries most able to process Russian crude oil are? That's right.

[00:07:27]It's Russia. Well, what has been happening to Russian refineries, guys?

[00:07:31]Well, they've been going kabooy. And what happens when your refineries are exploded and you have all this crude oil? Who wants to buy crude oil that you can't process into anything? Nobody.

[00:07:42]That's why these prices have remained low while grades of oil, grades of crude oil that can be processed by refineries that haven't been exploded by Iranian drones.

[00:07:55]It's kind of weird that all over the globe, by the way, Iranian drones are blowing up Well, sorry, no, no, I'm wrong. Iranian drones have not blown up crude oil refineries. It's actually Ukrainian drones. Iranian drones have blown up the Saudi oil refineries.

[00:08:08]Silly me. Uh but crude oil grades that have refineries that have not been exploded, those are experiencing huge increases in price as more and more of these refineries want to uh get the crude oil that they can to refine.

[00:08:25]So what does this mean though? Well, to understand what this means, we got to take a look at Russia's budget deficit.

[00:08:31]And right now, this was from about a week ago, Russia's budget deficit and spending is already exceeding the official plans by more than $12 billion.

[00:08:41]And this is from the Russian government itself, which already is kind of fast and loose with the truth. Right?

[00:08:46]According to data, federal spending by the Russian government is projected to reach about 45 trillion rubles compared to 44 trillion that was actually authorized in the budget in order to uh right projected revenue is of course 40 trillion rubles. So that 10% gap has to be plugged by deficit spending by debt spending. And this is a huge problem because again one in$10 of Russian spending is funded by these bonds, this credit card that charges 16% interest or at least that's the highest amount that is currently being charged and nobody is willing to lend them more. So you see there's a a a pretty massive problem here. And basically to solve it, Russia has very very very few good options.

[00:09:35]again, they basically have more taxes.

[00:09:40]That's it. And less and spend less, right? But they're not willing to slow down the war. They're not willing to devote less to the war. Um, they could save on personnel cost by doing a large-scale mobilization, and that seems highly likely. Um, more and more outlets are discussing a Russian mobilization, but the Russian public isn't going to stomach that. They of all people know that this war is just a croc. Russia has been telling its people that it's been winning the war in spectacular fashion for five straight years. Guys, it's like Afghanistan. The US was never winning the war. And they were about to turn a corner every year for 25 straight years. Okay? Nobody believed it at the end. And the the reality is that the Russian public knows this war is failing and they can see that it's failing because the totally defeated Ukrainians keep blowing up not just Russian oil refineries, but now they're targeting actually the Russian equivalent of Amazon because it sells not just civilian gear, uh, dishwasher detergent and stuff, but it also sells military equipment. It sells a lot of military equipment, uh, fiber optic cables and drones and, uh, cameras and body armor and all sorts of stuff, right? Imagine getting body armor on Amazon. Crazy. So, the fact is that the average Russian is not going to stomach a mobilization, even though that would save the government some money. But even if you mobilized all those troops, they still need to eat. They still need bullets.

[00:11:13]They still need mo desert crosses. Uh they still need uh useless helmets. Uh they need, you know, again to have their one rifle or whatever they carry before being fed to Ukrainian drones.

[00:11:26]These things are not cheap and the Russian government again is not going to have the budget to pull it off. Right?

[00:11:34]Last year the Russian government budget uh it was nearly just 3% of GDP, the highest level since the pandemic year of 2020. I point out though, this is this is greater than pandemic level spending that we're seeing now. But as you can see, in the deep heart of the pandemic in 2020 and 2021, Russian interest rates were between 6 and 7%. Okay? They have more than doubled, probably close to tripled.

[00:12:04]And this is exactly like what would happen in your own household. Okay? Russia has been broke. They've been putting their spending on the credit card for years now. We've just discussed it, right? Two and a half percent of their total GDP, not just their tax revenue, two and a half percent of their total GDP, right?

[00:12:21]10% of their entire government budget has been put on the credit card. This is again the equivalent of the average American putting uh $4 to $6,000 a year on a credit card. No, the average American household makes 80. So, it's about the equivalent of the average American putting household putting about $8,000 of expenses on the credit card and then not paying it off. And the problem is that now the credit card companies are saying, "Listen, you already owe us a bunch of money. You already have, right? Let's see if we can get a total of the total Russian government debt. See if we can find this. the total Russian government debt is about it says it's about 17% of their GDP which actually sounds good but remember that is at three times the rate that the American government pays so it is the equivalent of the US government being being at something like 75 to 80% of GDP in terms of the interest payments this is a crisis for Russia. Again, it is the equivalent of that American family who's put $8,000 a year on the credit card getting told, "Listen, no credit card company will give you a card." So, you have to figure it out yourself some other way. And that is going to be a disaster. Again, how long will that family last?

[00:13:54]Not as long as you think, right? Because yeah, they can try to tighten their belt, but again, Putin has made clear that reducing war spending, not going to happen. They can try to increase their revenue, right? Start driving Door Dash, but you can do that. But there's not a lot of blood that can come out of this stone. Again, remember the Russian government has to subsidize fuel for its general public. The fuel is so expensive. Gasoline is so expensive.

[00:14:21]Russia subsidizes it to keep it cheap for the public. So the and then they have to pay interest on the old debt and new debt. So what you're looking at is what's going to quickly become an exponential crisis for the Russian government. And I think again it it's probably not going to be in days. Um but it may be weeks or months like you may you probably will see in the next couple weeks Russian government decisions that are focused around reducing the cost of war. again immobilization being very likely um and increases in taxes. I think this is the only solution available to Putin at this point is that he has to and to do that to sell that he needs this war to become broader bigger to the Russian public. He has to go listen this isn't about a war a regional war against a neighbor that's going badly. He has to reframe it as some grander problem. One that the Russian public will tolerate being told, listen, every male is going to be put into service. Every you're going to have massive taxes that would never be acceptable in peace time. Will the Russian government will the Russian public buy it? Will the oligarchs that keep Putin in power buy it? Is there enough of an opposition power base to even push back against this? These are questions that we're going to answer.

[00:15:43]We're going to find out. We're all going to We're all in this together. We're all going to find out together. If you feel like you need to lock in, get it done, and you are tired of chugging energy drinks, strike gum. That's why I made it. It's made in the USA. Veteranowned, obviously. And it has zero sugar and all the caffeine in one of these has each piece. Each piece, not each pack, each piece. That's why everybody from Ukrainian drone pilots to athletes to very, very tired dads to streamers love this stuff. Right. So, thank you guys.

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