Is inflation back?

Yeah yeah, they claim that.

I’m just not sure that I buy it. I’ve talked to exam committee folk too, and Bruce Schobel wrote about it extensively on AO with a considerably more cynical take.

As the exam committee members are increasingly steeped in the material it all starts to look easy to them. Once they’ve asked all of the obvious questions on a topic if they want to ask new and different questions each sitting they have to go to increasingly esoteric material. And the study guides get better at the same time as the questions get harder so the candidates are better prepared but they answer similar numbers of questions correctly.

Look at the 2000 and 2004 sittings of Course 2, or Course 3, or Course 4 side by side… there’s no comparison in terms of difficulty. (2004 was way harder.) Yet the pass marks were largely unchanged. There was one particularly easy sitting of Course 4 (Fall 2002 IIRC) that had a much higher pass mark, but in general they didn’t move much despite the exams, with that glaring exception, getting much harder.

But the study guides were also way better by 2004 than they’d been in 2000. I mean, not a study guide but when the Macroeconomics study note first came out it literally had the words “supply” and “demand” backwards on something like 50 pages (presumably an example of Replace All gone horribly horribly wrong). I can’t even begin to comprehend the torture that students must have gone through trying to make sense of that before the errata list came out.

So sure, it was a lot easier for candidates to absorb the material after they got that fixed. But … are the exams measuring effort or knowledge? It always seemed to me like it was a lot closer to the former… while claiming to be about the latter. If it was about the latter then the pass rates should have been markedly increasing over time and they weren’t.

I’m pretty far removed from the process NOW, so some of this may well have improved in the last few years. I’m mostly familiar with what was going on when I was taking exams and, to a lesser extent, when I had students reporting to me who were taking exams.

Yeah, 2000 was before my time, so I can’t answer for that.

If it makes you feel better, I took Course 2 in 2004. Had no idea study guides or actuarial outposts existed until years later after I became employed.

I don’t know what current numbers are, but when Exam P went to CBT in 2005, the pass mark was in the low 60s. In 2020, it was around 70. In theory, CBT would mean a constant question bank and would guard against such increases, although perhaps tehy added easier questions on purpose. I don’t know when it increased, or if the increase was gradual or not, and don’t care enough to look up numbers (I think there’s been a syllabus change too).

Just a minor point re the AMA limiting the number of doctors by limiting med school enrollment. This is not the bottle neck. The problem is no residency positions for graduates. My niece just graduated from med school and she described the anxious students in her graduating class as desperate to find a position somewhere in the country. It turns out a significant number will not find an opening, and hence their careers are on hold. She did not know why there were so few positions and I have not done any research into why it is so.


Interesting factoid here:

According to the National Resident Matching Program, there are more than enough residency slots to accommodate all graduating U.S. medical students, with 1.82 residency positions per graduate. However, after factoring applicants who trained at medical schools outside the country, including U.S. citizens, there are, in reality, just 0.85 positions per applicant.


Bit of a bounce in inflation after it looked like settling back down. 3.67% over last 12 months, up from 3.18% last month.

Discouraging Canadian YOY inflation: up to 4% from 3.3% largely because the deflating impact of the very high gas prices of 13 months ago has passed.

A renewal of interest rate increases may be in the offing.

Last year inflation during the first 6 months was sky high. It moderated significantly after that. We are not past those super high monthly increases so the increases now are more reasonably what is actually going on and it isn’t a trend back to 2% like the fed wants. It is more like a 4% trend, that while they don’t like it, they are probably scared to raise rates more to dampen it but won’t lower rates scared that it could take off again.

The problem is the labor market isn’t reacting the way they expect and therefore isn’t forcing inflation rates down.

UK still stuck inside a wage-price spiral.

6.7% YoY in August (from 6.8% July).

BOE held at 5.25% today because the the higher cost of debt servicing is starting to bite individuals and companies.

Pretty convinced at this point this only ends with higher unemployment to create a larger amount of labour market slack.

With high inflation in 2021-22, it’s created an unusual situation where many people have a long-term mortgage rate that is lower than inflation. Yet in this WaPo article (I’ve gifted it so feel free to read), the columnist is describing how she paid off her 15 year 2.75% pa loan in half the time.

Interestingly, most of the people commenting on the article feel she made the right decision while a handful of people are pointing out there are risk-free bonds out there now paying around 4.5-5% and extra repayments should be invested in those. I would think it’s a great arbitrage opportunity to keep the loan as long as possible but it seems that many really dread debt.

That’s the thing: the arbitrage effectively eliminates the debt by putting money into something that gives you back more money, as opposed to putting money into the house, whose value falls, ceteris paribus, when interest rates rise.
Now, as long as you don’t expend that saved money on something else, all is fine.

OK, so this “financial advisor” isn’t all that.

If you want more personal finance advice that’s timeless, order your copy of Michelle Singletary’s Money Milestones.

Imagined excerpt:
“Don’t throw away that box of old Beanie Babies! They have personal value to you! And that’s what’s important!”

Reading on…
OK, I agree on the mortgage deduction. Thanks, Trump. While you saved me some time in early April, you also cost me money. (My mortgage interest and property taxes once were high enough to require itemized. Now, property taxes are no longer allowed to be deducted and I have a very low mortgage rate.)

Reading on…

Some readers were outraged that we paid off a mortgage with a 2.75 percent interest rate.

They ignored the thousands of dollars in interest we avoided with our early payoff plan — a guaranteed return.
Again, investing the mortgage principal instead in risk-free bonds results in net positive cash, you idiot! And, when you eventually retire, you can pay off the mortgage, and have extra cash. But, no, feels are more important to you, the personal financial adviser.

Reading on…

As I have pointed out before, you can do the math yourself using a mortgage-payoff calculator at Let’s say you have a 30-year, fixed-rate mortgage for $400,000, with an interest rate of 6 percent. If you pay an extra $200 a month toward the principal, you can cut your loan term by more than 5½ years and save $98,277 in interest. If you increase the extra payment by $400 per month, you shorten your mortgage by nine years and save $159,602 in interest.

But, you don’t have a 6% loan. You have a 2.75% loan, while there are 4% risk-free bonds available.
Do I have to do the math? You can put your 401K’s and IRA into these market-rate funds. You don’t have to keep investing these in the stock market.
OK, some simple math, so she can understand:
Assume a $400,000 mortgage at 2.75% and 30 years. Payments are $1633 (rounded) courtesy of Excel.
Taking $400/month invested in risk-free bonds at 4%, every month for 30 years, results in a FV of $277,620. The interest payments on the loan total $187,687. So, she has opted, hypothetically, to lose $90K.
(Someone check my math.)
Besides, a lot of people downsize their housing when they retire (or earlier), and get rid of mortgages then.

Reading on…

I discourage decisions that are detrimental to your financial health. You don’t want to be reckless, but if you’ve crunched the numbers and have confidence you’re good financially, paying off your mortgage before you retire can be an appropriate financial move.

Yes, but you just did something that is damaging to your own financial health.

Mic. Drop.

Right on your toe!

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Reminds me of the early 80’s when interest rates were high but the student loan rate was low. People I know who didn’t need a student loan (college was pretty cheap in the first place, and living at home and all) got them, invested that loan into their savings account. Oh, but the debt!!!

Just curious, but do you have offset style mortgages in the US?

Please define what that is. Small words preferred.

According to Investopedia they are not legal in the US

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Almost. We have “all-in-one mortgages” which generally have a similar function, but the accounting is somewhat different because of tax laws. They are not common, presumably because lenders prefer to securitize mortgages and I imagine that an all-in-one mortgage doesn’t translate well to being bundled in an MBS.

You owe £200k. You have £30k in savings at the bank that holds your mortgage. When you make a payment on your mortgage, you only actively pay interest on £170k.

If I were a bank or whoever they’ve regifted those long-term low-interest loans to, I’d be much happier if the loans were paid off earlier. Maybe get some journalist to write some fluff piece with mutterings about “peace of mind” and aiming for a “debt-free” life.

You forgot one thing:

Your probability of losing your job (no income) or becoming ill (more expenses) over those 30 years.

So the expected payoff is likely a lot smaller than you are predicting.

I think if those things happen, you’re still better off, cuz more money.