Carleigh Bettiol, left, Lin-Manuel Miranda, Leslie Odom Jr. and Anthony Ramos in the musical Hamilton. (Joan Marcus)

“Hamilton” is getting rave reviews on Broadway. And today, Alexander Hamilton would understand Russia’s current fiscal crisis.

As the first Treasury secretary, Hamilton quickly saw the big flaw in America’s young federal system. States could borrow freely, and their creditors knew the federal government would make good on the loans. Hamilton swooped in to nationalize this debt and repackage it as U.S. bonds. A crisis was averted — and U.S. credit ratings got a steadier foothold — but at the same time, the states were put on notice that they would not be able to borrow from the feds so profligately in the future. (Today we would call this hardening their budget constraints.) Later, when nine states defaulted in the 1840s, their foreign creditors were shocked to learn that the U.S. government would not bail the states out.

How Russia in 2016 is like the United States in the 1780s

In post-Soviet Russia, Moscow no longer holds all the purse strings. But it’s still footing a lot of the bills. It pays for more than a third of regional revenues for 30 of the 85 regions. Russians protest, “Stop Feeding the Caucasus,” as North Caucasus regions rely on Moscow for more than 80 percent of their official budgets. And 13 regions depend on the center for more than half of their rubles.

Moscow is feeling the squeeze. Oil revenues are down. Prices are up. So is military spending. In 2015, GDP fell 3.7 percent in real terms. And the country’s income gap is widening: Russia’s top 1 percent owns about 70 percent of the entire wealth of the country, according to the Credit Suisse Research Institute. By contrast, the U.S. top 1 percent own about 37 percent; in China, about 39 percent.

Regions are getting squeezed, too. Some 76 regions are running a deficit, and it’s only getting worse. President Vladimir Putin’s May 2012 decrees made regions responsible for raising the salaries of teacher and doctors, among other obligations. In some regions, half the budget goes to public sector wages alone. With the Hamiltons in Moscow pushing spending cuts, regional governments are slashing public investment and social services. And they’re borrowing money.

This problem of federalism, and Hamilton’s grasp of it, was the subject of Jonathan Rodden’s influential 2006 book, “Hamilton’s Paradox.” What would Hamilton make of the problem of regional debt in today’s Russia?

How bad is Russia’s regional debt?

Russia’s regional debt load is not terrible — yet. But in the past two years, total debt has nearly doubled. In half the country’s regions, debt is over 50 percent of current revenues. In the two most indebted regions — Astrakhan and Mordovia — debt is well over 100 percent of revenues.

Russia’s federal deficit, about 2.8 percent of GDP, is not excessive by world standards. The total budget deficit of federal, regional, local, and off-budget funds together is only about 3.8 percent of GDP. Internal debt is about 11 percent of GDP, and external debt about 5 percent.

This level of debt is not a problem for a country like Germany, where regional debt is even higher. But Germany’s regions enjoy high credit ratings and low interest rates. Russia is not Germany. Russia’s growing regional debt imperils the entire economy.

Currently, about 9 percent of regional budgets go towards meeting debt obligations, but the figure is rising rapidly. Thanks to the recession, both personal income and corporate taxes are falling. The bad news is that regions can’t just raise taxes to make up the difference.

So far, creditors in Russia seem to think the debt is sound. As one Russian financial market manager put it, “In case of problems arising with debt service, the federal center will simply transfer the necessary sums to extinguish the current obligations.”

In other words, it’s just the problem that Hamilton faced in his day.

The regions don’t have many options for unloading their debt

Currently, the regions owe about 37 percent of their debt to commercial lenders and international financial organizations — and an equal amount to the federal government. What’s a region to do? The choices are few, and none look great. They include:

  • Borrow heavily, primarily from state banks like Sberbank and VTB. Pay high commercial rates — in the range of 13-15 percent. And then hope for a bailout from Moscow.
  • Issue bonds. Few regions do, although some municipalities do issue bonds. Regional governments consider them a cumbersome way to raise funds compared with bank loans.
  • Hit up the federal treasury for a loan. The federal government has tried to replace commercial debt with treasury loans at lower interest rates, but that hasn’t made much of a dent. According to the chair of the Audit Chamber, the federal program reduced the total share of commercial debt by only 0.6 percent.
  • Tighten that belt, again. In many regions, social spending takes three-quarters of the regional budget. Meeting Putin’s public salaries decree means cutting deeply into social programs. Although the pension system is centralized, regional and local budgets must finance public health, education, housing, social assistance and other programs.
  • Don’t pay the bills. Wage arrears are on the rise. Regional and local governments can’t pay local companies that provide services.

So who’s aware that the system is tottering?

Standard & Poor’s, a leading credit agency, issued a warning in June 2015. It foresaw that several regions look likely to default, with some already in technical default, meaning that they have defaulted in all but name. The agency is skeptical that the Russian government will honor the debts.

Moscow also sees the writing on the wall. In November, Prime Minister Dmitry Medvedev put on his Hamilton hat. He pleaded with regional governors to be more careful about taking on new debt. Other federal officials implore governors to rein in spending, all while imposing hefty spending mandates without providing regions with the tools to finance them.

What about Russia’s rainy-day funds?

If you’re an optimist, you point to Russia’s enormous reserves. Together these are the equivalent of just over 11 percent of GDP (Russia’s GDP is about $1 trillion at the current exchange rate).

The big worry is that the mounting fiscal crisis could trigger social unrest. GDP continues to shrink and inflation remains stubbornly high. Unemployment is low, only because employers cut wages and working hours rather than lay off workers altogether. So wages are falling in real terms, and poverty is rising.

Russia’s economy is more vulnerable to global downturns than most. The 2009 recession hit Russia harder than any other G-20 nation. And the drastic plunge in oil and gas prices isn’t helping.

It is hard to avoid the conclusion that the federal government has balanced its own books by pushing the financial squeeze out to the regions. Regional tax revenues are declining and tax evasion is rising as more employment goes off-book. As a consequence, just as Hamilton would have predicted, Russia’s regions are borrowing heavily at extravagantly high interest rates. Lenders expect the federal government to honor those debts.

Hamilton is watching to see what will happen when the regions can no longer service their debts.

What’s going to happen next?

Certainly Moscow might draw down its reserve funds to bail out regional governments on the brink of default. And Moscow could force Russian state banks and commercial lenders to restructure the loans. If world oil prices recover before the reserve funds run out, Russia will escape the current crisis with only minor scratches.

If not, the regions will be forced to make further cuts in social services. Already the federal government has decided to hold 2016 pension raises below the current inflation rate.

Sporadic protests have broken out. In January 2016, protesters in several cities took to the streets over local attempts to replace in-kind benefits with cash. This small wave is an echo of the much larger protests that broke out across the country a decade ago when Moscow tried to do the same thing on a larger scale.

Russia’s citizens still expect Soviet-era benefits, even though the state no longer runs the economy. Now the state must back its social obligations with actual revenues. In flush times, when oil and gas export revenues are high, the government can avoid hard choices. When commodity prices plummet worldwide, however, Russia lacks the institutional mechanisms to help balance national wants with national means.

If the crisis in regional finance provokes a wave of social protest, that could cascade. Large-scale public disillusionment with Putin’s leadership could trigger defections among Putin’s elite. No one can predict what might happen next.

Thomas F. Remington is Goodrich C. White Professor of Political Science at Emory University.