Thread by @Prune602

‼️ The Russian Debt Thread: Part 1

Wars are expensive and the bills are piling up. Further key rate increases are expected in the near future. Russia is having trouble securing a loan. How bad could it be?

(You might want to bookmark this)

I’m going to start with a warning. DO NOT COMPARE RUSSIA TO OTHER COUNTRIES

At least not superficially. You’re going to see people respond with what are essentially “whataboutisms”

Inevitably someone will try to dismiss what is going on by directing your attention elsewhere

So when someone comes along and says “but what about [insert country]’s debt?!”…we’re aren’t talking about [insert country] right now. It’s just distraction.

Russia has a long experience with “Potemkin Villages” and you need to learn to spot them.

en.wikipedia.org/wiki/Potemkin_…

We’re going to be looking at the BIG PICTURE.

I think it helps to think of it as an ecosphere. You can’t just look at something in isolation.

(Note: When looking at the situation in this light, in complex historical context, references to other countries may be appropriate)

I just realized I’m 4 tweets and still just in the introduction…

Which means I know this is going to be long, and I’m going to have to write it a little bit at a time. THEREFORE the thread isn’t over until I tell you it’s over.

(And even then, I might add more)

The bookmark is your friend!

Also, I’m going to try to see if I can change my format a little bit for the people who use the thread reader apps. (We’ll see how it goes)

ok, let’s talk about what happened.

For those that don’t know, I had been putting out a weekly OFZ thread. “OFZ” are short hand for Russia’s Federal Bonds. But I had to pause it because of some delays in data, and some changes.

Here is the last one I did. I usually add extra interesting information at the end.

https://twitter.com/prune602/status/1836813700012847273

In the process of trying to finally get that up and running again, I came across new information. This lead me to having to make a choice.

Making one giant new OFZ thread with the new data, or splitting this to a separate thread.

I choose the second option.

It just seemed like the combining the two would be too big and people would get bogged down. So expect the new OFZ thread in the (hopefully) near future.

Also for those who are new to these threads, don’t be afraid. I am NOT an economist, I am an engineer.

My goal is to try to explain this as simply as possible. And I’m likely not going to do it in a way an economist would.

I am going to now point you to a previous thread that I wrote that is somewhat misleading in the way that it is titled. This one👇

https://twitter.com/prune602/status/1806437879645634991

That thread goes through a history of the Russian economy since the 2022 invasion. I HIGHLY recommend you read it if you haven’t.

In it, I describe the 3 Phases the Russian Economy has gone through

I think we are still currently in Phase 3, but maybe moving into a new phase.

(Sorry to all the regular readers for all the introductory notes, but I think the new people need it)

Do not equate the:

👉 Health of the Russian Economy

with the

👉 Health of the Russian Budget

They are two separate things and one preys upon the other. Remember: Ecosphere

EVADING SANCTIONS STILL HURTS RUSSIA

It usually results in

👉 INCREASED COSTS
👉 Increased time

And often results reduced quality.

Russia will try to tell you sanctions don’t hurt, while simultaneously trying to get the sanctions lifted.

🇷🇺:

Things are not normal in Russia. The economy is operating outside of normal parameters. You can’t rely on just looking at one value.

For example, if you had a very sick patient with a really high fever, if you only relied on temperature to measure health, then a drop in temperature could mean

👉 The patient is getting better

OR

👉 The patient is dead

And in this example, the hospital is really REALLY invested in everyone thinking the patient is fine. So much so that they won’t let people see a lot of the data related to the patient (hiding more all the time) and they’re paying people to say everything is fine.

Things are not ok. They wouldn’t be hiding things if they were. And you can’t hide the fact that the key rate is 19% and headed upward while much of the world is reducing their key rates.

Next Russian Central Bank Meeting is 25 October 2024

cbr.ru

Let’s discuss the 🇷🇺 Government’s Budget in very simple terms, similar to your own finances, (but with special powers)

The Government has to try to balance their income & expenses. When they can’t, this is where the deficit comes from. They have to figure out how to pay that.

Russia has a savings & investments account. This is the

👉 National Welfare Fund (NWF)

We’ll refer to this NWF from now on to save me a lot of time and characters

There is a liquid and an illiquid portion of the NWF.

I wouldn’t rely on anything in the illiquid portion being available. And some of the investments in the NWF that are generating funds, those funds are not remaining in the NWF. Instead they’re getting used as income for the budget.

So lets talk about the liquid portion

The thing that will throw everyone off about the status of the NWF is the valuations. I’m not saying that they don’t serve a purpose, but you need to see the whole story, not just part of it.

I prefer to show the liquid assets of the NWF in their ACTUAL form. 👇

This is the latest data (through the end of September 2024). This way you can see the funds have and continue to head OUT of the liquid portion of the NWF…NOT IN.

You can see big drops in December, this is when they use part of the NWF to fund the deficit.

Here is the table of data related to the NWF. Just keep in mind that Russia is manipulating the exchange rate (I’ll explain later…unless I forget, then someone can remind me & I’ll explain it 😂)

Notice that only Gold, Yuan, & a little bit of rubles remain in the liquid part.

The NWF resides in the Russian Central Bank. That’s where it lives

Time to point out another confusing piece of news that comes out every so often. This is yet another one of those “partial pieces of information”

*sigh* this one of those times I’m going to have to thread the needle between giving you a simple explanation, but also giving you access to a more complex answer

AND I’ll do that in Part II of this thread!

Here’s Part 2

https://twitter.com/prune602/status/1845617335677190630