Russia's spy chief, Sergei Naryshkin, crawled out of his snake hole and tried his best to intimidate U.S. lawmakers and influence American discourse.
To do so he brought out an old and tired boogeyman: Vietnam.
"Ultimately, the U.S. risks creating a 'second Vietnam' for itself, and every new American administration will have to deal with it," Naryshkin said.
I'm shaking.
In truth, though, Naryshkin is partly right.
Ukraine does have some unfortunate parallels to Vietnam — but for Russia, not for the U.S.
For one thing, the United States sent about $77 billion in aid to Ukraine in FY22 and hopes to deliver $45 billion in FY23 — but only if the funding supplemental is passed, which seems unlikely at this point.
Of course, even if that money does make it out of Congress, we'd basically be talking about $122 billion in security assistance over a two-year period.
That would translate to less than 4% of our total budget.
Russia, on the other hand, is all in.
On November 27, Vladimir Putin signed into law the Russian federal budget for 2024.
Obviously, national defense was the highest priority, absorbing 10.8 trillion rubles (about $120 billion).
That translates to about a third of Russia's total budget.
For further context, the Kremlin spent 3.57 trillion rubles, or 14.4% of its total budget, on defense in 2021 — the year before Putin invaded Ukraine.
Spending on domestic security (i.e., law enforcement) is also rising to a total of 3.4 trillion rubles ($37.6 billion).
That means a total of 14.2 trillion rubles ($157.2 billion), almost 40% of Russia's total budget, is going to the Russian Armed Forces, intelligence services, and law enforcement agencies.
That's how much Putin's vanity invasion is costing his country.
Beyond that, roughly 300,000 Russian soldiers have been killed or wounded just for Putin to stake his claim on eastern Ukraine. And in September he signed a decree drafting another 130,000 Russian citizens to fight in the upcoming year.
The Russian people obviously aren't happy about this, but they can't protest the way Americans did the Vietnam war lest they be thrown in prison, shipped off to a work camp in Siberia, or killed.
That and the potential for an attempted coup — like the one Yevgeny Prigozhin attempted — are why you need added security.
And yet if Russians think they have it bad now, they're really in for a treat, because cuts to social programs and inflationary debt binges are what's paying for all of this.
Moscow has effectively frozen spending on education and health care, causing their share of the budget to shrink to 10.6% — the lowest level since 2011.
And "social policy" allocations, which include government salaries, pensions, and benefits, now account for 21.4% of the budget — also the lowest level in 13 years.
Technically speaking, the amount spent on those programs will rise, but far below the rate of inflation, which translates into real-term cuts.
Russian inflation peaked at nearly 18% in 2022. Tighter monetary policy was able to drag that back down to 2.3% in April, but it's since climbed back up to 6.7% in October.
This is a bit of a conundrum for Russia.
It's having to borrow huge sums of money to finance its war in Ukraine. But doing so means weakening the ruble and getting less in return.
Russia plans to borrow 13.3 trillion rubles in just the next three years, taking on 2.5 trillion rubles in debt in 2023 and almost 5 trillion rubles in 2026.
Consequently, the amount the Kremlin spends to service that debt will more than double in the next few years, hitting 3.32 trillion rubles ($34.24 billion) by 2026.
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Again, for context, Russia allocated 4.4% of all spending to servicing its state debt in 2021. However, that share will increase to 9.3% by 2026.
That will eat further into social spending as defense spending consumes more cash but ultimately stagnates in real terms.
That is, adjusted for inflation, Russia's military spending in 2022 was actually comparable to the 2015 level and even lower than it was in 2016.
Similarly, the 2023 defense budget is about the same as 2022's when adjusted for inflation.
Nevertheless, it's taking up a growing share of Russia's overall budget while lowering the quality of life for the average Russian.
This is the path the Kremlin has chosen.
And for what?
In a dream scenario for Putin, House Republicans hold off another tranche of aid for Ukraine and Donald Trump returns to the Oval Office in 2024 to do his bidding and abandon the country entirely.
At that point, Putin may well cement or expand his territorial gains in Ukraine, if not take it over entirely.
Of course, by that time, the country will have been reduced to rubble littered with mines and hostile Ukrainian insurgents.
Meanwhile, Russia proper will remain a pariah state economically and diplomatically, leaning heavily on China and Iran to keep itselt afloat.
What remains of its people will be left mourning the loss of hundreds of thousands of their kin and scraping together what rubles they can to compensate for inflationary pressures that have put even the most mundane luxuries completely out of their reach.
Or as spymaster Naryshkin put it…
"Ukraine will turn into a 'black hole' absorbing more and more resources and people."
Enjoy your Vietnam.
[Note: If you want to see the next-gen war-fighting technology that's poised to take down the likes of Vladimir Putin and Xi Jinping, then check out my latest report here. It details a brand-new opportunity that could be a gold mine for investors.]
Fight on,
Jason Simpkins
Simpkins is the founder and editor of Secret Stock Files, an investment service that focuses on companies with assets — tangible resources and products that can hold and appreciate in value. He covers mining companies, energy companies, defense contractors, dividend payers, commodities, staples, legacies and more...
In 2023 he joined The Wealth Advisory team as a defense market analyst where he reviews and recommends new military and government opportunities that come across his radar, especially those that spin-off healthy, growing income streams. For more on Jason, check out his editor's page.
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