Does anyone remember learning in history class about the economy of the Weimar Republic — the ill-fated government of Germany between World War I and the ascendance of Adolf Hitler and the Nazi Party? It experienced hyperinflation and financial calamity, and we read about Germans needing wheelbarrows of cash to buy even a loaf of bread.
We think that couldn’t happen anymore in the modern world — but it can. In fact, it is happening right now in Russia, as a Fortune article reports. Some people think that Russia’s currency, the ruble, is in a state of irretrievable collapse; its value against other currencies, like the dollar, is plummeting and even draconian increases in Russian interest rates might not stem the tide.
The reason is oil. It’s Russia’s one big marketable commodity and the bedrock of their economy. The price of oil has been falling for months, which has made investors nervous about how Russian companies are going to pay off their debts given the lack of incoming cash. So, the ruble trades lower, and the ability of Russian companies to pay off debts calculated in foreign currencies becomes harder and harder — which makes defaults even more likely. By one calculation, the amount of rubles Russian companies need to pay off foreign debt obligations has increased by 90% just since the start of November.
How is Vladimir Putin going to deal with this crisis? You might be tempted to say this disaster couldn’t have happened to a nicer guy, but let’s resist the impulse to enjoy some schadenfreude. Putin is adventurous as it is, and you have to wonder whether a destabilizing currency failure is going to make him even more likely to wave his big stick to try to distract from his other problems. And if Russian companies start defaulting on the more than $670 billion they owe, what is that going to do for the world economy?
Keep an eye out for the wheelbarrows.