I recently spent a few days in Moscow meeting with a variety of economic and financial officials and analysts, both in the public and private sector.

Until July of this year Russia was growing at an annual rate close to 8%, oil prices were peaking at $140 a barrel, the country was running a large fiscal surplus and a large current account surplus, it had a war chest of $600 billion plus of foreign reserves, its stock market, bond markets and currency values were strong and policy makers were thinking of turning the rouble into a major reserve currency, at least for the CIS bloc. This economic and financial success was leading Russia to flex its geo-political muscle challenging the U.S. on a number of political and military issues, using its energy power as an instrument of foreign policy in its relations with the Eurozone and its former Soviet neighbors. The peak of this geopolitical resurgence of the Russian bear was during the August war with Georgia when Russia flexed its military power while the US looked impotent in its inability to defend an alleged ally.

But what a difference a few months make: six months later Russia is today in deep economic and financial trouble. Let me now explain in detail why…