Thread by @samagreene

Sanctions have very rapidly escalated, as transatlantic consensus has consolidated. Two key things to note now:
1) Escalation is proactive, not reactive, for the first time since 2014;
2) Moscow has not responded.

https://twitter.com/henryjfoy/status/1497705581817253889

It’s important not to exaggerate here. Economies, like wars, aren’t fully predictable. Putin may not have calculated such a rapid response, but he will have known that these kinds of sanctions were on the cards.

Moreover, Russia has a highly skilled central bank and finance ministry, who will have contingency plans. At best, though, those plans will slow the impact of sanctions, rather than eliminating it.

The real impact of sanctions will come from what Alan Greenspan called the “animal spirits” — the herd-like response of countless economic actors caught up in an emotional spiral.

If sanctions have an effect, it won’t be by changing Putin’s mind. It will be by altering the animal spirits of the Russian economy, creating a panic about the future that leads to a massive political shift.

To be clear, this is not guaranteed to happen. Indeed, such things happen rarely in politics, and there are powerful forces arrayed against them.

What plays against Putin at the moment, though, is the fact that however prepared he and his gov’t are for these sanctions, Russian elites and masses are cognitively and emotionally _unprepared_.

Most Russians throughout the socioeconomic food chain never believed war was likely. Even if they support it, it has come as a shock. A catastrophic failure of the currency — among other possible fallouts — will thus come out of the blue.

While there are no signs of panic as yet — and nothing significant has hit yet, save for a dip in the ruble and financial markets — friends in Moscow are already reporting that bank machines have no cash.

Many, of course, have seen that before and will not find it troubling. It’s also a problem the central bank can handle. But the fact that it isn’t causing a panic suggests that people aren’t aware of what may be coming. And if they’re not aware, they’re not prepared.

Nor is the gov’t doing anything to prepare people — not bracing them psychologically, and not explaining how to cope if/when the sh*t hits the fan. That’s a mistake.

Events in Kazakhstan this winter reminded everyone what can happen when you have geographically or socially localized pockets of extreme hardship. Russia has avoided that throughout 8 years of decline by using its considerable liquidity to spread the pain around.

That kind of austerity will become much harder to manage as liquidity declines and the pain multiplies. And it will become impossible to manage if people come to the conclusion that the pain is sure to get worse.

I’ll have some more cogent thoughts on this — and a few other things — in coming days. Stay tuned.