We cringed last month when we read the FOMC’s September 21 meeting minutes, specifically the part where the committee said stresses “in European financial markets remained broadly contained,” but bore watching.
It was the first time, as far as we could tell, that they’d used the term “contained” in that context since the committee’s infamous assessment that the subprime-mortgage turmoil back in early 2007 was “relatively well contained.”
Well, we know how that worked out, right? Not contained…at all.
And neither are the stresses in European financial markets, as it turns out. In fact, it’s looking anything but contained at this point, as fears of contagion from Ireland increase.
The lesson here, of course: When the Fed says something appears “contained,” run the other way.
Notice that in the FOMC minutes released today from the meeting earlier this month, the committee doesn’t say any thing’s “contained.” They actually don’t mention much about Europe, except to say that sovereign-debt spreads had either declined or were little changed — except in Ireland, where “spreads moved higher on concerns over the fiscal burdens associated with losses in the Irish banking sector.”