The trouble with Paris, we realized, walking home from work on Friday, is that there are too many French people in the city.

By contrast, London is a great city, because it has so few Englishmen. In the best neighborhoods of central London the only Englishmen we see are driving taxicabs.

Readers will say we exaggerate. We don't deny it. There are plenty of Englishmen in London and plenty of foreigners in Paris. But everything happens at the margin, as economists say. At the margin, Paris is a French city; London is an international one. Paris is an attractive capital city. London is a great one.

We have more to say about this...below, but first let us get back to work:

Tomorrow is the Fourth of July. It is Independence Day for the land of immigrants. Many people in America are taking a long holiday weekend. But here at The Daily Reckoning headquarters in London, we recognize no national holidays. There is always something to be reckoned with, regardless of time of day or country of origin. Today, we reckon with the fact that gold has jumped back from its recent correction and now is once-again over our target-buying price of $600.

We laid out our best guess as to what is happening on Friday: The U.S. is still following Japan into a long, hard slump - with softening real estate leading the way.

"America's day of reckoning is nigh," says a headline in this week's MoneyWeek. Quoting Barron's Alan Abelson, MoneyWeek remarks, "it has been the greatest housing bubble since shelter-seeking man first crawled out of his dank cave."

Housing bubbles can't last forever. Even the biggest one in history has to deflate sometime. Why not now?

On Sunday, we called a friend in the eye of bubble - South Florida, just north of Miami - to ask about the weather. "Did you manage to sell your house?" we wanted to know.

"No, there is just too much stuff for sale," came the answer. "It's hard to get anyone to take our place seriously."

Our research concluded, we turn back to theory and pontification.

"A housing slowdown is especially ominous since the sector has underpinned growth over the past years..." MoneyWeek warns. Why? Because the recession of 2001-2002 was followed by very weak job growth. Those few jobs that were created tended to be related to one of two big industries: housing and war. Both industries flourished on cheap credit. Homebuyers need low rates in order to buy houses they otherwise can't afford. They need cheap credit, too, so that they can refinance...taking out what little equity they have so they can spend the money on things they don't really need. And the empire needs low rates in order to finance its war against terror
- more specifically, its periphery wars to subdue the poppy growers of Afghanistan and the desert tribes of Mesopotamia.

We stop a moment to reflect on one of the protagonists in the war against terror - Osama bin Laden. The man publicly announced his strategy. He would lure the Great Satan to waste his energy, his money, and his reputation in a futile war. For every $1,000 expended by bin Laden's forces, the United States would have to spend $100 million! Sooner or later, the empire would be exhausted. It would be bled dry, bankrupt - powerless to defend itself.

The strategy was simple. It was unsurprising and hardly inspired; it is a typical strategy for guerrilla struggles. What is surprising is that the U.S. Empire would be so simpleminded as to fall into the trap in such a big way. The cost of these peripheral wars has just passed $500 billion, said a press report last week. What has that money bought? According to a survey of both Democrat and Republican strategists, it has gained us nothing. The terrorists are a bigger threat today than they were when the war was announced.

But now, Ben Bernanke is fighting his own war. He is out to prove that he can battle inflation, and win. As we pointed out last week, this use of overwhelming force against a minor enemy may have unintended and unpleasant consequences. It may trigger an unexpected flank attack - by deflation! As the housing bubble deflates, a lot of people are going to have a lot less money in their pockets - agents, brokers, granite counter-top makers, developers, road builders, and all the millions of people who have come to depend on rising house prices for their spending money. That's why David Rosenberg of Merrill Lynch puts the odds of recession next year at 40%, and why we would put them even higher.

What does this mean for the price of gold? Recessions are not typically inflationary. People spend less, so prices tend not to rise. Gold may not go up as fast or as far as its bugs believe, but this could be a recession as strange and grotesque as the boom that preceded it. While Americans in the homeland might find they have too few dollars, holders overseas could find they have too many. Gold could rise in price, even as domestic consumer prices, property, and financial assets generally fall.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.