We're down in Latin America, on vacation. Still, we keep an eye on the financial markets - for entertainment, of course.

The Battle of the Bubbles continued last week...with the housing bubble firing the loudest shot on Friday.

As you recall, dear reader, we're watching a gigantic struggle between two bubbles - one in residential real estate in the United States...the other in worldwide liquidity. One is losing air; the other is gaining it.

The big question is: Which bubble will win? The one that is deflating, or the one that is still inflating?

So far, since 2002, the inflating bubble has dominated world financial markets. More and more liquidity - money and credit in a variety of forms
- has boosted prices all over the planet, not the least in U.S. housing. But now, the housing industry zeppelin is losing gas, and may be losing altitude.

On Friday, it seemed to drop down a couple of feet.

"Investors unsettled as home starts declined," the Financial Times headlined the story. Housing starts in January fell to their lowest level in 10 years. The 'soft landing' everyone thought was a done deal appeared less sure than it had the week before. Work on houses dropped 14% in the month.

And did you know, dear reader, that more houses are generally sold between Superbowl Sunday and the middle of April than in any other period? We didn't either. But that's what the Financial Times says. Actually, two thirds of the sales for the entire year normally happen during this period. And if they don't pick up a bit, the whole year's housing revenues are in jeopardy.

Of course, the housing industry could stabilize, just like everyone says it will. But what we wonder is what will happen to the other bubble...if housing blows up?

We don't know. Right now, one bubble is pulling the economy up. The other is tugging it down. Either one of them could blow up at any time.

We watch...we just want to see what happens next.

*** From a tax standpoint, America is not the worst place to live...but it's not the best either. We read in the paper that the top marginal rate in France can be as high as 71%. In the United States, the top rate...including state and local taxes...reaches only up to about 50%.

But the effective rate of tax on rich Europeans is probably much, much lower. The Rolling Stones, for example, earned $450 million over the last few years, according to a report in the U.K. press. On that money, they paid just $7 million in taxes. They did it perfectly legally, by setting up a company in the Netherlands to receive their royalty revenues.

Last week, the Swiss canton of Zug came under attack because it offers resident businesses a tax rate between 11% and 12%. "Unfair competition," says the European Union, of which Switzerland is not a part. "Yes," responds a letter writer to the FT, "and Switzerland competes unfairly in other ways too. The trains run on time. And you can get through the Zurich airport in 20 minutes. The place is efficient, safe, and low-tax. No wonder the rest of Europe is complaining of 'unfair' competition."

In Europe and the rest of the world, people rarely pay the top rates, because there is always competition. In France, rich people either jiggle their affairs until the tax rates drop down...or they lie about their wealth...or they leave. Lying to the taxmen is considered neither dishonorable nor dangerous. No self-respecting Frenchman or Italian would tell the truth on his tax declaration - not if he could get away with it.

Another article in the French press tells us two rich people leave France every day. If they don't want to pay French taxes, they just move to Belgium or London. If they work it right, they can get their taxes down to a reasonable level. If you don't live in France, you don't have to pay French taxes.

But Americans cannot escape. They can't take advantage of the competition, because the IRS maintains a monopoly; if you are born in America, the IRS claims a right to a big part of your income for your entire life. Then, when you die, it takes another big part of whatever is left.

We haven't lived in the United States for more than 10 years. During this time, we can't think of a single service provided by the U.S. government that we have used. We collect no unemployment insurance. We use no public health services. We haven't even called the police.

But during that time we have paid a lot of money to the United States in taxes - nearly as much as we would have paid if we lived there. We didn't even lie to the tax men, partly because we don't prepare our own taxes (we can't understand them) and partly because tax fraud is a much more serious issue in the United States than it is in civilized countries. Meanwhile, we pay taxes to France and Britain too...which at least makes some sense, since we do avail ourselves of public services in those countries.

For the moment, you don't hear much squawking about it. The rich are getting richer. They're not going to squeal about taxes until the bubble pops. But then, the pressure will be on, because the lower orders - who have made nothing out of the boom and will bear the brunt of the next downturn - will be in a foul mood. They'll not only want to soak the rich; they'll want to hang them.

*** Why bother getting rich at all?

The answer is very simple: Biology. Throughout those long millennia in the woods, status was as important as it is now. It was always a matter of 'survival of the fittest.' And the fittest were always the 'high status' beasts - the strongest...the fastest...the most powerful...the richest. It is still a fight for love and glory, as this article from MarketWatch makes clear:

"The richer you are, apparently, the better sex you have. That's according to a recent survey of more than 600 high-net-worth individuals. And rich women, it seems, enjoy sex the most.

"Hannah Shaw Grove and Russ Alan Prince, two well-known researchers on the habits of the rich and famous,...surveyed people with an average net worth of $89 million, and who make more than $9 million per year. They found that money is an enabler in a number of ways to enhance sexual experiences.

"The majority of men and women credit their private wealth with achieving a better sex life. When viewed separately, a larger percentage of women agree with the statement, perhaps indicating that females derive a greater degree of empowerment from their financial independence than their male counterparts," the survey, "Money as an Aphrodisiac - Being Rich Means Getting Lucky on Your Own Terms," found.

Some 84% of rich women and 63% of rich men say having money means having better sex.

In the survey, three-quarters of men cited more frequent sex and a greater variety of partners as the primary benefits of having wealth, revealing a fascination with quantity. "In short, men equate more with better," Grove and Prince write.

By contrast, women placed significantly less value on the volume of sexual interactions and partners they had than the overall excellence of the
experience: Nearly 93% of women cited higher-quality sex as the greatest sexual benefit of personal wealth - and the biggest benefit overall to being rich.

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