Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here's Friday's query:

Gwynn Pealer: I thought I understood Social Security, but all this political [baloney] has me confused. I thought Social Security was like other pension funds where contributions were invested in a way so that it was not a Ponzi scheme. I understood that Social Security funds were invested in government bonds and that the taxpayers were expected to pay them back with interest. What else is the Social Security fund invested in?

Paul Solman: No, Gwynn, Social Security was originally designed as a "pay-as-you-go" system in which each succeeding generation of workers is supposed to take care of the last. But, of course, all workers are charged a "payroll" tax of 6.2 percent up to $110,100 in earnings (an increase of $3,300 from the 2011 max), as are their employers. (The employee half has been suspended again until Feb. 29.) That money is supposed to provide for today's retirees, as their Federal Insurance Contributions Act (or "FICA") taxes were supposed to pay for those who preceded them. To the extent that more money was collected than paid out in any given year, it was ostensibly set aside in a "fund."

But there is no escrow account. In fact, the money has been used to purchase U.S. Treasury securities -- to be blunt, loaned back to the U.S. government to cover its annual deficits. So the "Social Security Trust Fund" is nothing more nor less than roughly $2.6 trillion of U.S. bonds (IOUs), sold off to raise cash to the extent that benefit payments exceed payroll tax revenues in any given year. The problem: When Treasury bonds are sold off, the government has to refinance -- to again borrow the equivalent amount by issuing more U.S. bonds, dollar for dollar. Our best explanation of this, including a trip to the legendary Social Security Trust Fund "lockbox," aired back in 2001.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight.

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Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here's Thursday's query:

John Naghshineh: Mr. Solman, could you please talk to Richard Wilkinson or Kate Pickett about income inequality? They wrote the book, "The Spirit Level: Why Greater Equality Makes Societies Stronger." According to them, social mobility tends to be stronger in more equal societies, which contradicts Richard Epstein's views about inequality being an incentive for growth. They also show greater equality correlates with higher life expectancy rates, lower crime rates, fewer dropouts, teenage births, educational outcomes and much more. You can guess how the United States fares on these charts up against other economically advanced nations. Their research couldn't be more relevant to our times!

Paul Solman: But we did. We've run two segments from our interview with Richard Wilkinson:

Inequality Hurts: The Unhealthy Side Effects of Economic Disparity

In Ohio, How Two Counties' Economic Paths Diverged Over 30 Years

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight.

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Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here's Wednesday's query:

John Feuille: Most of us have played Monopoly. You set up the board, deal out the money, roll the dice and play until one person collects so much of the wealth that the other players can't buy anything, or pay rent, or pay utility bills. The game stops. The rich guy can't sell anything, or collect any rent, the poor people can't buy anything or pay rent, etc.

Let's say, you want to keep the game going. The rich guy, with his eye actually on collecting more wealth more quickly in the future, might suggest getting rid of all those onerous taxes and fees in Chance and Community Chest. But that won't get the game going again. Someone has to go into the bottom of the closet, find the old broken Monopoly game and deal out more money to the players. If you do that, the game can get going again. Kids can figure out what to do -- it's unfortunate that Congress seems unable to.

An inherent weakness of capitalism as a method to bring the most happiness, to the most people, most of the time, is that if too much wealth gets concentrated in too few hands, the game stops. The correct purpose of regulation is to keep the game going as long as possible.

Paul Solman: Provocative analogy, John. The game of Monopoly was actually invented to make your very point.

One question raised by your email, assuming for a moment that it's true: Why don't the rich understand this? To which a response might be: Many of them do. Hence the Buffett-Gates push for higher taxes on the wealthy. And what about the rich who resist arguments like yours? Could be they're short-sighted. Could be just too greedy to let go. Could be they just don't agree with you.

As to finding an old Monopoly game in the closet and using the money to keep the game going -- it just so happens that's what the Fed did after the Crash of '08 and what the European Central Bank is doing as I write.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight.

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Marc Whitehead sends the follow-up question below after reading Paul's thoughts on tariffs from early January: If we put a 15 percent tariff on all imported goods, how much money would that tax generate each year?

Question: Paul, I don't think you are calculating 15 percent on all imports, only an increase on goods that are currently taxed. I believe that almost all imports are currently un-tariffed. What do you say?

Paul Solman: Good point, Marc. But it doesn't much affect my withering conclusion in the post of Jan. 5: that wiping out the federal debt and "entitlement" obligations by hiking import duties (aka tariffs) is a non-starter.

After reading your question I went online, and have now seen estimates as high as 67 percent for the share of imports that's tax-free. That might require a tripling of the numbers I estimated on Jan. 5. But even if we were to do so, the U.S. would still fall hundreds of billions of dollars short of covering our annual budget deficit with tariffs. Not to mention looming Social Security and Medicare shortfalls. To rid us of all our obligations? I stand by my recent bottom line: "we're surely talking tariffs that would be many multiples of the price."

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight.

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Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here are a trio of queries for Monday:

Peter Steiner asks: Who rates the raters?

Paul Solman: Rater raters? No one. Still.

Warren Rottmann asks: Are the stock exchanges of today more of a casino for traders rather than an exchange for investors? Is options trading and ultra-short trading at the heart of it?

Paul Solman: Sure seems like it.

Demos Kazanas asks: A solution to the Greek debt problem I have not seen discussed is Greece paying its internal obligations (its budget is 50 percent of its GDP) in low interest (1 percent) euro denominated bonds. These will be worth 50 percent-70 percent of nominal value and could serve as currency substitute while injecting much needed liquidity in its economy. There are many benefits of such a move, not least of which that it will force moving away from cash and into electronic transactions across the economy, thus reducing tax avoidance. I would value your view on this notion.

Paul Solman: So you mean every government worker would take an immediate pay cut of up to 50 percent? I can certainly believe that, as you say, "There are many benefits of a such a move," but unless I'm missing something, domestic tranquility is not likely to be one of them.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight.

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By Paul Solman and Elizabeth Shell.

The unemployment rate continued to trend downward Friday, reaching 8.3 percent, the lowest rate in three years. We calculate U-7, our own more inclusive statistic that adds the underemployed and those who want a job but have been out of work so long the government no longer counts them. U-7 is down to 16.9 percent for January. That's the lowest we've seen since we started tracking the figure in January 2010.

With a very healthy 243,000 new jobs added in January, the picture is certainly brightening. The last time the unemployment situation figures were this good was back in February 2009, President Obama's first full month in office. See The New York Times for more detail.

Note: "New Jobs Added, Revised" and "New Jobs Added Since Jan, 2012, Revised" will return in March.

But despite today's cheery numbers, a historically high level of unemployment persists. And as we explained yesterday, the Gallup organization has a competing estimate for January, which turns out to be considerably more downbeat. Gallup estimates an underemployment rate of 18.7 percent and our U-7 total of the un- and underemployed still hovers above 27 million Americans. With that in mind we present an audacious proposal, backed up with some truly sobering historical justification, from our friend at Duke, economist William Sandy Darity. The professor first broached the idea of a federally guaranteed jobs program for every American two years ago at the annual economics meetings. We featured a video with his explanation here on Making Sen$e, asking him tough questions about the proposal.

The essay, which you can read here, is forthcoming in the Review of Black Political Economy. For the skeptical, you might want to take a look at Darity's video explanation from 2009, above.

We're interested to know what you think of Darity's proposal. Let us know in the comments below.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.

More signs that the U.S. economy may not be headed into a strong recovery just yet: unemployment was at 8.6 percent in January, with underemployment up to 18.7 percent.

But wait a minute. Those of you that watch unemployment numbers (and this page) closely will surely note that we're a day ahead of ourselves: the government's official unemployment reckoning, as compiled by the Bureau of Labor Statistics, will be announced Friday morning at 8:30 a.m. ET. So what's the deal?

The figures above come from Gallup, the research and polling group. It turns out Gallup has been tracking U.S. unemployment and underemployment rates as long as we have here on Making Sen$e. We just discovered that, since January 2010 (the same month we unveiled U-7), they've been doing their own polling -- separate from the government -- to try and assess the jobs situation.

Why create a new measure?

"The way unemployment is measured is very important for policy reasons and otherwise," says Dennis Jacobe, Gallup's chief economist. But underemployment -- part time work for those who want full time jobs -- Jacobe thinks the number is being under-reported.

To get what Gallup calls its "Underemployment Rate," Gallup adds to those who've told them they're unemployed all those working part time because they say they can't find a full-time job. The total, Jacobe said, as a percentage of everyone polled, 18 and higher, is usually a few percentage points above even the government's expanded measure, so-called U-6. (Official or "headline" unemployment is known as U-3.)

For December, Gallup calculated an "Underemployment Rate" of 18.3 percent, more than a percentage point higher than our U-7 of 17.12 percent. (We'll have January U-7 figures for you Friday.)

To determine U-7, we add to the officially unemployed of U-3 all those who currently want a job but don't have one and those who are part time for economic reasons. We divide that by a larger workforce number than the government uses, adding those who want a job but currently don't have one and the part-timers.

We were alerted to Gallup's figure by a soon-to-be published paper proposing a federal jobs program (more on that Friday). Why is it higher than U-7?

Partially, it's due to different methods and parameters. For example, our U-7 is based on Bureau of Labor Statistics data. Gallup samples 30,000 individuals per month, while BLS interviews 60,000 households. Gallup neither seasonally adjusts their data nor removes farm payrolls, both of which BLS does for the official unemployment rate.

But Jabobe says Gallup's numbers are more indicative of the true un- and underemployment situations.

"We have modern survey techniques," Jacobe said, such as including cell phone numbers rather than just land lines. "We have the most up to date, modern techniques that exist."

From here on, expect to see Gallup's figures highlighted, along with our own and the government's, each month.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.

Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here's Wednesdays query:

John E. Tucker asks: Could reducing U.S foreign aid be used to help the Department of Defense reduce military spending?

Paul Solman Thanks for the question, John. Recently, an educated friend brought up this same shibboleth. In fact, foreign aid represents, by the most generous estimate, about 1 percent of the U.S. budget. And by the way, much of it is defense spending: it's simply for the direct defense of countries other than the United States. For example, we give more than $1 billion a year in "foreign aid" to the Egyptian military.

By contrast, official U.S. defense spending amounts to nearly 20 percent of the U.S. budget. Reducing foreign aid even to the vanishing point, in other words, wouldn't go very far in reducing military spending.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.

By Paul Solman and Elizabeth Shell

The monthly housing data released Tuesday by Standard and Poor's Case-Shiller Index came with sparse good news. Home prices have declined yet again, continuing their wobbly down-up-down decline after the market bubble burst in 2006. Of the 20 metropolitan areas the Index watches, the composite was down nearly 0.7 percent from October and down 3.7 percent from November 2010.

"The bell has not yet tolled for a sign that the market is recovering," Susan Wachter, professor of real estate and finance at University of Pennsylvania's Wharton School, told us. "And it is not surprising. We're seeing a continuation of a downward trend."

Exploring our interactive below, you can see how prices have changed since 2000 in these 20 metro areas, and that overall, prices are back to their mid-2003 levels.

• Click and drag your mouse on the chart to zoom in on a particular span of time.
• Use the box at top to choose your view: quarterly percent change, yearly percent change, monthly index value.
• To view a particular city, click Hide All then the city's label below.

The Case-Shiller Index is based on a value of 100 in January 2000; in other words, an index of 150 means a home's value is 50 percent greater than in January 2000.

Oh, and the good news, relatively speaking -- Detroit and Washington, D.C.'s prices are up compared to November of last year. But if you live outside the Beltway or Motown, what does all this mean? Why are housing prices so low?

The key, according to Wachter, is unemployment. That's important when we look at being able to pay for a place to live, especially a home of one's own. New households form when people separate from family living arrangements -- when children move out and buy a house, for example. But if unemployment stays high, those kids that can't find jobs might be sticking around with their parents longer, and Wachter says not a lot of new households will form.

"We have households forming at historic lows," she said. "This is reflective of people doubling up because they can't afford to go off and form their own households."

But there are other factors at play. Even though, given the so-called fundamentals, this should be a buyer's market, psychology is key. So while mortgage interest rates are literally at an all-time low, housing prices are back in line with income levels and the gap between the cost of owning vs. renting has closed substantially in many areas, there's still a general lack of confidence.

"Buyers who are on the sidelines are concerned about the market, and understandably so," Wachter added. "They're concerned their $20,000 down payment could be lost" if prices continue to fall.

Prices not adjusted for inflation.

Further fueling the fear is a huge inventory of homes plus a glut of potential houses coming on the market from foreclosures, distressed sales and the like -- a "shadow" inventory. Wachter says these factors might cause prices to overshoot the fundamentals again, as they did during the real estate boom, but this time, overshoot on the downside.

Which might be all very well and good for the potential buyer -- she's acting rationally. Why buy a house now and potentially lose money if you think you can get a better deal in a few months? But her rational behavior feeds a negative feedback loop. "I'll wait for a better, lower price," she thinks, betting prices will continue to drop. Her not buying keeps prices low and causes others to not buy as they see no one's buying.

According Wachter, the loop has been looping for some time.

"What's really indicative is that we're down year over year. We're seeing the air continue to slowly hiss out of the housing balloon after it popped."

For housing, at least, today's numbers suggest we have further to wait for the hissing to stop, the balloon to finish deflating.

Interactives by Justin Myers.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.

Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here is Monday's query:

Doug Clymer asks: What is the benefit -- if any -- of our free trade agreements? We seem to have lost jobs and industries while our balance of trade remains negative. Meanwhile, other countries are gaming the system to our detriment.

Paul Solman: As I periodically ask in response to questions like yours, Doug, what's the alternative to more rather than less "free" trade? Higher prices on imports, plus protection (from international competition) of U.S. companies. Think those are good ideas in the long run? Likely to maintain our international competitiveness? Adam Smith explained the benefits of borderless trade 236 years ago: we get richer by competing with each other through specialization, because specializing enables us to produce more with less. I.e., we get better at producing what others will buy. The greater the number of competitors, the more specialization, the more innovation, the more technological progress and thus the better we get. The more any country limits that competition, the less specialization in that country and thus in the world overall. Therefore, the less for everyone in the long run and especially for the country setting the limits.

Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here is Friday's query:

William Carr: I discovered your page following a reference from the show. You're just the man I've been looking for. Question: If the stimulus program of 2009 was included in the federal budget and the budget was not subsequently reduced, did we in effect get an equivalent stimulus program, or more, in 2010 and 2011?

Paul Solman: I am happy to be your man, if only for the duration of answering your question.

If you count all federal spending as "stimulus," then by definition the answer is yes, assuming that when you write a "budget not subsequently reduced," you're taking inflation into account. "Real" -- which is to say, inflation-adjusted -- spending is the only real way to compare one year's numbers to another's.

But if you mean something a tad more nuanced -- or should I say more accurate -- then no, absolutely not. Are you suggesting that were we to spend more on defense, in real dollars, that should count as "stimulus"? A rise in the number of retirees hitting Medicare? What about built-in raises to federal employees? What about a rise in interest payments on our federal debt as we borrow more money to balance our budget? We could, in short, wind up spending a lot more money without it being in any way categorizable as "stimulus" spending.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.

Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here is Thursdays query:

Richard Linnemeier asks: What harm would the execution of credit default swaps for Greek debt have? What value do these instruments have to the buyer and to the global economy if they are not enforced?

Paul Solman: First, those who don't know what credit default swaps are may wish to watch our explanation from 2008, "Risky Business," below. (Fans of Jon Stewart may enjoy his lampoon of the explanation's opening.)

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As to the execution of credit default swaps, 2008 was also a good year for explanation. Because it was the inability of AIG to meet its obligations to pay off the investors to whom it had sold credit default swap insurance that caused its demise, and was deemed so threatening to the global financial system that the U.S. took over AIG. See "Falling 'Domino' of U.S. Economic Issues" for a sketch of the doomsday scenario.

These days, the fear is that institutions that sold insurance on Greek debt -- Greek credit default swaps -- will be obliged to pay up if Greece were to officially default. And that they won't be able to meet that obligation, leading to global credit freeze 2.0.

Indeed, this has been a major issue in the Greek debt negotiations, which have hinged on investors taking a "voluntary" haircut of as much as 70 percent on their Greek bonds -- i.e., an agreement to reduce the principle and interest. Should enough investors do so, Greece would not technically default and thus credit default swap insurers wouldn't have to pay up. But it's still up in the air as to whether Greece will reach the necessary percentage and the deadline appears to be March 20.

One more wrinkle. Greece is threatening to force recalcitrant bondholders to accept the new deal. If it follows through, that might trigger a default. Then again, most of the world has an interest in preventing such an event. Litigation would seem inevitable.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.

Some might be expecting comment on the State of the Union here, but really, I don't see much point. I've been listening to these speeches for decades now, and they are not policy proposals so much as articles of faith: "Here's what I believe in. Here's what I'd like to do." Then comes the political process, and all the haggling - if not downright obstructionism - that will drastically modify, if not completely keel-haul, anything the President suggested last night.

Liberal commentators like Mark Thoma bemoan a massive short-term jobs proposal, given that some 27 million Americans, according to our own U-7 reckoning, are still un- or underemployed. Conservatives like Greg Mankiw are "disappointed, and even a bit surprised, that the President adopted the xenophobic approach to outsourcing and international trade" and "misleading claims about Warren Buffett's tax rate."

The reaction of markets has been positive: The Dow up slightly as of 1:30 p.m.; U.S. government interest rates, down.

Meanwhile, the action remains in Europe, where our own Margaret Warner is now headed. I was particularly struck this week by a fascinating pair of posts on the Eurocrunch.

Here's conservative pundit Ed Yardeni early in the week:

"There's a big relief rally under way in European bond and stock markets. The Italian bond yield fell as low as 6.00 % this morning. It was as high as 7.26% on January 9. The MSCI Europe stock price index is up 4.7% ytd, matching the S&P 500's gain. It is now back above its 200-day moving average.

The point of this data dump is that European cyclical and financial stocks are pointing to better times. Many of them plunged during the second half of last year, but have retraced 50 percent or more of their losses since bottoming in early October. The MSCI Europe index lost 25.4 percent from last year's peak on February 16 through last year's low on September 22. Since then it has regained 50.2 percent of that loss, though it still remains 12.6 percent below last year's peak.

That's all quite impressive given that S&P downgraded nine euro zone nations on Friday, January 13. In its statement, S&P explained, "In our view, the policy initiatives taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the Eurozone." However, the agency said it believed euro zone "monetary authorities have been instrumental in averting the collapse of market confidence."

The credit rating agency has turned into a contrary indicator. Recall how well U.S. Treasury bonds performed after S&P downgraded the U.S. government in early August. Financial markets are clearly increasingly impressed with the power of the European Central Bank's Long Term Refinancing Option bazooka. So are European leaders, who recently heeded the ECB's warning against backsliding on their commitment to tighten budget rules.

In the Monday, December 12 Morning Briefing, I wrote the following about the LTRO., which the E.C.B. announced on Thursday, December 8: "Could it be that the ECB just became the indirect lender of last resort for European governments by acting so aggressively as the lender of last resort for the banks?" In my opinion, the ECB had just averted a sovereign debt and banking meltdown by agreeing to lend an unlimited amount to the commercial banks so they can do the same for governments at a very profitable "carry" spread.

That was a fairly controversial view at the time. Indeed, when I appeared on CNBC's Squawk Box on December 12, guest host Neel Kashkari, who oversaw the U.S. Treasury's Troubled Asset Relief Program (TARP) under U.S. Treasury Secretary Hank Paulson, disagreed with my upbeat assessment. Many other commentators were equally skeptical that the European banks would take advantage of the carry trade by purchasing more European government bonds. Now that the markets have done so well, the consensus seems to be that the ECB saved the day.

Yesterday's Wall Street Journal included an article titled "Secret Weapon: Europe's Loan Plan." The article stated that the LTRO has been more like a stealth bomber than a bazooka. It restored confidence by ensuring that Europe's banks had access to financing. It forced the shorts in European bonds and stocks to cover their positions. The article reported that banks with the biggest European government bond trading desks are showing interest in profiting from the carry trade opportunity created by the LTRO. I wouldn't be at all surprised if European leaders such as French President Nicolas Sarkozy quietly remind their friends at the banks that they should buy government bonds as a quid pro quo for the liquidity provided by the ECB, which saved their collective derrières. After the LTRO was announced, Sarkozy told reporters that was his expectation. I dubbed it "Sarkozy's Moment."'

Except for the Y2K "crisis," which Yardeni warned of loud and long, he has consistently looked on the bright side over the course of his career, including a cheery assessment of the housing market in late 2006 with me and Nouriel Roubini on the sidewalks of New York. Sometimes he's been right; other times, as in 2006, he's been rather spectacularly wrong. If investment banker and economist prognosticator Ken Courtis is right, Yardeni is again missing the boat. The Courtis comments were sent to me by Yale historian Paul Kennedy. His 1988 book about (among other things) imperial overreach in general, and U.S. overreach in particular, "The Rise and Fall of the Great Powers," has sparked new interest in recent years. It begins in debt-ridden 16th century Spain, debt-ridden again (or perhaps "debt-ridden still") more than half a millennium later. But these days Spain is simply symptomatic of Europe in general.

"We have an 'interesting' situation emerging in Europe," writes Courtis. "Since mid-Nov, the ECB [European Central Bank aka Europe's Fed] has been pumping money into the financial system faster and on an even larger scale than the Fed did previously. The tsunami of money has been so large, that during the last week, the ECB balance sheet became larger than that of the Fed, which itself is several times larger than it was before the Bush Bubble popped.

A great part of the money that the ECB had announced a few weeks back for its 500 billion Euro, three-year loan facility, at 1 percent, which they had said was for banks to use to buy government bonds -- and so make turn on the spread -- has ended up being used by some of the most dangerously weak banks in Europe to rebuild their balance sheets!

How? you might ask, and it is a really good question!

Not surprisingly it was the Italians who 'discovered' the 'loophole'. Was this new ECB facility concocted so that the 'loophole' would be 'discovered'? Whatever, this is how much of this money has ended up refinancing the banks -- a sort of EU TARP as it were.

First, the EU banks took out about 500B Euros of this three-year money at 1 percent interest. But as the ECB defined the collateral that could be put up as a counter party to the loans in such a broad way --actually the collateral can include virtually any financial security, except the paper linked to the kitchen sink. (Maybe with a wiggle that could be included as well.) So rather than buying up high-yielding sovereign debt, and capturing the spread, the Italian banks - and others will now follow-- issued their own securities and served them up as collateral... So that means these banks now have in place 1 percent financing for the next 3 years! And as it is ECB money, it is considered equivalent to equity!

This gives a whole new definition to "kicking the can down the road."

It is hard, for me at least, to see the flaw in Courtis' reasoning. But as I often point out, following John Maynard Keynes, economic vitality is all about "animal spirits," i.e., optimism. If the ECB can keep the game going, who's to say how far the can can be kicked?

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.

Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here is Tuesdays query:

Rob Griffith asks: Is there any consensus about whether large rapid inflow and efflux of capital into various countries has played a significant role in the financial crises of the last 30 years, like those in Latin America, East Asia, the U.S. and Europe? If so, what actions are considered to be more helpful than harmful?

Paul Solman: Consensus? In economics? Hardly ever. That's why any economist worth her salt will qualify almost all assertions with the phrase "ceteris paribus," meaning "all things equal," as in, "If more money is printed, there will be inflation, ceteris paribus." One of the safest statements in economics is that printing money causes inflation. But if people refuse to spend the new money and bury it instead, no inflation. "All things" have not remained the same.

As to the financial crises of the last 30 years, yes, rapid capital flows have often been fingered as a key culprit. "Hot money," it's called, and it generally comes from foreign investors in the form of short-term loans that drive down interest rates when they flood the country, spurring spending and investment. When the investors get nervous, however, and suddenly pull their money out by selling their loans (or simply not refinancing them with new lending), interest rates shoot up, the domestic currency drops in value, and spending and investment swoon. This is how China explains its strict controls over foreign investment and its refusal to let its currency trade openly: it says it's worried about the role of "hot money" in causing bubbles and busts.

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.

Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here are Monday's queries:

Two questions today from reader Barb Weismann:

Question One: Recently on the show "60 Minutes," they showed how banks are walking away from foreclosures. They could, instead, be reducing people's principal when their house value goes down. Are the banks instead getting rid of houses so they can write it off as a different kind of loss than reducing principal, or because they need to stimulate the housing market by creating more demand, when the old housing is all bulldozed?

Question Two: If Europe is doing so bad, why does my $100 get me €77? A huge difference?

Paul Solman: First of all, with regard to your first question, Barb, see our NewsHour story on the same story last summer -- Raze the Roof -- situated in the same city "60 Minutes" featured, Cleveland.

As to why banks are letting properties rot rather than reduce the principal, here are three possible reasons:

1) From my own reporting, it seems that about 75 percent of homes with mortgages are held not by banks, but by pools of investors and Fannie/Freddie. The banks generally "service" the loans: collecting the money, etc. But they're not on the hook for any losses. If they reduce the principal, though, the investors can theoretically come after them legally. So it's easier to let the properties rot.

2) Reducing principal sets a "bad precedent." Since banks do hold the other very roughly 25 percent of mortgages (if my estimate is correct), they might be flooded with appeals for mortgage reduction were they to make renegotiation easy.

3) Incompetence.

Answering your second question as to why, if Europe is sinking, the dollar doesn't buy more euro:

Because $100 only got you €68 (68 euro) in May. So you're getting 10 percent more euro for a dollar than you were just seven months ago. That's certainly a difference. Some might even call it "huge."

This entry is cross-posted on the Rundown- NewsHour's blog of news and insight. Follow Paul on Twitter.