There is always a point in the middle of a crisis when people convince themselves that the worst is over – call it the eye of the storm. The FTSE 100 rallied in the immediate aftermath of the run on Northern Rock, even though it was clear by that point that many other banks were just as vulnerable to a deterioration in credit conditions. After the first wave of the Spanish flu, people convinced themselves that the worst was over, only to be hit with another, more severe wave just a few months later. 

It seems clear that we are currently moving into the eye of the Covid-19 storm. Stock market indices around the world plummeted in March, before recovering through April and May and stabilising in June. Investors are clearly banking on the predictions of a V-shaped recovery made by many economists at the beginning of lockdown. Governments too seem to have decided that now is the time to begin easing lockdown measures introduced at the beginning of the year to curb the spread of the virus.  

And yet, it is obvious to even the most casual observer that the storm is far from over. Deaths around the world continue to mount and, while many countries are managing safely to reopen their economies by stepping up testing and tracing measures, others are ending lockdown without any plans whatsoever. Until a vaccine is found, we cannot dismiss the possibility that the world will face a ‘second wave’ of the virus that will require a re-commencement of lockdown measures.

What’s more, the virus is now spreading to new parts of the global economy. As Kim Moody pointed out in a brilliant essay for Spectre journal, the coronavirus initially spread through the veins and arteries of the world’s trade system: it began in Wuhan, a global centre of commodities production, before making its way through commercial hubs in East Asia, commodities exporters in the Middle East and Latin America, and the centres of global consumption in Europe and North America. 

From London, Washington and New York, the virus spread to the hinterlands of the economies of the imperial core – some of the worst outbreaks in the US and the UK are now in Texas and Leicester respectively. And while initially protected due to its peripheral position in the world capitalist system, sub-Saharan Africa is now seeing an increase in cases, emanating from trading centres in Nigeria and South Africa. 

Public health experts have long been warning of the catastrophic impact the virus could have if it begins to spread quickly in the poorest countries in the Global South. Many of these states are already suffering from deep debt distress, with governments being forced to choose between servicing their obligations to creditors and purchasing ventilators and protective equipment for medical staff. 

But it is not just in the Global South that the pre-existing weaknesses created by uneven, financialised capitalist development are about to be exacerbated by the pandemic. So far, financialised economies in the Global North like the US, the UK and Ireland have managed to avoid a debt crisis as a result of the pandemic – but the James Bullard, President of the Federal Reserve Bank of St. Louis, recently warned that the pandemic could still trigger a financial crisis. 

Governments have stepped in to backstop the incomes of workers, provide relief to mortgage holders, and provide almost unlimited liquidity (cash, generally in the form of loans) to their domestic corporate sectors, which were already heavily indebted before the pandemic struck.

The big four central banks, meanwhile, have made it clear that they will take any measures necessary to protect their domestic financial systems. By slashing interest rates, providing dollar liquidity to central banks around the world and constructing an alphabet soup of new lending facilities, the Fed in particular is responsible for saving the international financial system. 

But each of these measures rests on the assumption that the firms, households and banks will ultimately be able to repay the loans that the state is providing in their hour of need. If the problem is simply that falling incomes mean businesses are struggling to access cash, then loans would be the sensible option. But if we are headed for a depression in which many of these businesses will barely be able to cover their bottom lines, let alone repay all their debts, then all the cash in the world won’t make a difference. 

The fact that banks coordinating the government’s ‘bounceback loan’ scheme in the UK have already stated that between 40-50% of the businesses in receipt of these loans will default when the scheme ends is no cause for optimism. Moreover, the central assumption of most government forecasts is that unemployment will reach 3 million in the UK. In the US, while recent figures suggest unemployment has fallen to 11%, some economists are projecting that it will reach at least 15% by the end of the year.

How are struggling businesses and unemployed consumers meant to honour their obligations to creditors if they aren’t earning anything? And if they don’t, who will pick up the slack? Will the state step in to nationalise struggling businesses, write off the loans of indebted consumers and force the banks that issued the debt to take a hit? Or will the pain be forced onto workers and small and medium sized businesses in a doomed attempt to protect the profits of the big banks and keep government spending to a minimum? 

We have no answers to any of these questions, and the fact that the governments of the US and the UK seem to be making things up as they go along does not make it any easier guess. In this context of dramatic – almost unprecedented – uncertainty, the optimism of the last few weeks is, at some point, likely to give way to a self-reinforcing cycle of pessimism.

Expecting the worst, investors will sell assets, businesses will lay off workers, and consumers will stop spending, bringing to life their worst fears about the possibility of a deep economic downturn. 

If there’s one thing we can learn from economic history, it is that the eye of the storm is never the end of the crisis. In fact, the worst is generally yet to come.

Knowing this, policymakers should be preparing for the crisis to enter its second phase – even if they are hoping for the best. And the Left should be readying itself to resist ruling class’ attempts to lump working people with the costs of their own ineptitude.