Thanks for your response. The reson that I read your posts with great respect is that you do such great research and you get all the numbers to back up your claims. I have to say that I do agree with what you are saying. It is not all bad. Also, I try to understand what is it that makes an economy tick. Some of the questions I ask and try to understand are * How is it possible that there is a growth in service sector without the backing in manufacturing and production? * Corner stone for any growth is the consumer spending. How can it be that consumers are still spending more and more and there is no growth in the manuf/prod. so called old economy. Is the statistical figures re. consumer spending out of sync or lagging? * How important is the old economy - is it less important now than 10-20 years ago (I like the year 1962).? I have to say that I do not think so. It very much looks like an engine room for the rest of the economy. The famous dialemma: Which came first the Chicken or the egg?
And I think that Chicken or egg thing sum it up as where I am at with the whole thing. I it seems that I am not making a lot of progress at the moment.
But the stakes are high. One interesting question is that how low can the DOW go before starting to have a catastrofic effect on the global / US economy? What happens if the DOW hits say 5000 and another 25% is off from a companys value. Companies will have really hard time to get credit from banks because by then most companies are in debt to their eye balls....so what happens....total collapse? One company defaulting their payments after another? .....Any thoughts?
Anyhow, I did not mean to put you or myself in a specific category, I was mearly commenting the tone of your post. I would say that I am a realist with a optimistic "undertone" but all in all I do not like categorise people. Sorry if it sounded like that.
Cheers
Later
PS. I think Grant is refferring to this case re. court ruling. It is good for economy.
From www.afr.com.au
Tax bonanza on home loans Aug 3 Fiona Buffini
Investors will be able to make their mortgage tax effective and pay it off faster while building wealth through an investment, under a watershed court ruling.
The recent decision appears to have also opened they way for investors to move to a new family residence while maintaining their original home as a negatively geared investment property, as long as it has not already been paid off.
Tax experts say the Federal Court decision may also have the potential to overturn the conventional wisdom that people trying to build wealth should pay off their home loan as fast as possible.
The court found that all repayments on an investment property could be postponed until the owner-occupied home loan was paid off, while the compound interest - the interest on the interest - was fully tax deductible.
The Australian Taxation Office cracked down on split-purpose loans, which grew in popularity in the mid-1990s, after it became alarmed about the blowout in lost revenue due to the tax claims for compound interest, which accelerate the tax benefits of negative gearing.
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The Canberra couple involved in the latest case, Richard and Trudy Hart, refinanced their old house, rented it and bought a new house.
They borrowed $300,000 via an Austral Mortgage "wealth optimiser" loan, split into home and investment accounts. They directed all payments to the home loan, making no interest or principal payments on the investment account.
As a result, the mortgage on the new house, with its non-tax deductible interest, was paid off in six years instead of 25, while tax-deductible interest on the investment loan, relating to the old house, compounded - increasing the tax deduction by $170,000 in the Harts' case.
Justice Graham Hill said the split loan was "certainly explicable only by the taxation consequences" and clearly created greater tax deductions for interest than otherwise available.
Nevertheless, he said the dominant purpose of the Harts was to finance the two properties, not to avoid tax, and Justices Conti and Hely agreed, citing John Howard, who, as federal treasurer, introduced Part IVA of the general tax avoidance section of the Tax Act 19 years ago and said the provision was confined to "schemes of the blatant or paper variety".
Vicky Edema, managing director of Austral Mortgage, which developed the Harts' loan, said the win made it easier for ordinary investors to pay off their home loan while building wealth through other assets.
The Harts' lawyer, Ross Seller of Gadens, said the decision was "crucially important" for future disputes about Part IVA.
"This decision says that Part IVA should not be applied to normal business or investment transactions. It also clarifies that negative gearing, as a tax-effective strategy, is not affected by Part IVA," Mr Seller said.
Deloitte tax partner and former ATO tax counsel Michael Bersten said the landmark case would be closely studied by the ATO and product developers.
"There's clearly a general approach the ATO has on financing arrangements that the courts are just knocking back," he said.
Les Szekely, senior tax partner with Horwath Sydney, said the case could alter basic investment advice.
"The great challenge for average mum and dad investors is to pay off the non-deductible home mortgage. This changes the strategy. If you've paid off part of a home loan, you don't have to pay it all off before you can buy an investment property."
The ATO said special leave to appeal the Harts' case to the High Court was still being considered.
