Agreed. It's like the Mafia running a country. Where will it end?
He needs war to keep control. War reinforces his projected image as a patriotic Russian defending Russians who live beyond the borders of Russia. We can therefore expect further destabilisation of the Donbas region. We can also expect aggression towards the Baltic states, particularly the east of Latvia where there is a substantial Russian population. Threats exist to both Lithuania and Poland through the concept of a land corridor from Belarus (which is very closely tied to Russia) to Kaliningrad. It's possible we could see renewed offensive action against Georgia also. The uncertainty in my view is where the war is going to be, not whether there will be a war.
One alternative is a coup within Russia. Many of the Russian elite are horrified by the plunging rouble, but I'm not sure this will be enough. Of course many of the elite take their income from Russian minerals and directly export it to the West, typically with the wives and families also living in the West. In effect they are fast becoming ex-pat Russians with "estates" in Russia, ie with the source of their wealth in Russia but little real interest in the nation above a secure system, and Putin may actually suit them.
If not a coup we're looking at a revolution, along the lines of the Ukrainian revolution. The poll ratings for Putin are simply not credible; very many in Russia are horrified by what he is doing. In Ukraine he has created a war between Slav and Slav. Ukrainians are perceived by Russians as their brethren. An issue that could be a catalyst is the MH17 shooting. If the evidence becomes overwhelming that Russia shot down this plane and them that Putin lied to the Russian people I think we might see a tipping point. As such Putin will do anything to obfuscate on the issue. (Curiously the fall off the USSR is attributed by many in Russia to the situation where the government lied about the moon landings.)
I suspect we are going to see something of all three. Probably there will be an effort to oust Putin. Probably there will be some popular demonstrations. Probably there will be a war to defend Putin's position.
Let's say Putin enters eastern Latvia to "defend" Russians in Latvia (and this is a majority Russian area). Now Latvia is in NATO and the EU. Does anyone really believe NATO would go to war over this? Or that the EU would stop buying gas from Russia? How far could Putin take such a policy? Poland has a special visa area adjacent with Kaliningrad and touching the Belarus border - what happens if Russia sends in troops to administer this? The nations of the EU (except UK and France) have put very little thought into defence. Is the reality that we in the West would do nothing?