francine: in 2013, mervyn king stepped down as the governor of the bank of england. decade at the helm. he helped steer the economy out of a financial storm, but he did not stop sounding warnings that the world faced a new crisis unless there was reform in the financial sector. where do you think the next crisis lies? lord king: i would guess if i had to it would be in the area of higher amounts of debt, because the amount of debt in the world today is higher than it was 10 years ago. i think the risk is that there will be some defaults around the world, which will not look coordinated or related, but actually they will have knock-on effects and lead other people to default. i think once that happens, you may find the banking system once again looks maybe overleveraged or undercapitalized because the losses that they will take as a result of these defaults will eat up some of the equity capital that they have on their balance sheet at present. and i think that is where we may see -- we can see examples in china. there have been some defaults. within the monetary unio

is speaking now at the nyu's stern school of business with the former bank of england governor mervyn kingt's listen in. >> i think the other thing that i learned or discovered was important is very careful deliberationsd among participants in the in order to carefully think through a strategy and try to develop a consensus before presenting it to the public. october, we began the process of shrinking our balance sheet, but getting to the point of starting that process involved well over a year of discussions in the committee about how we could do that in a way that the public had in mind,and we how we would use our balance sheet, and to do it in a way that wouldn't be disruptive to financial markets. far, so wood, things so good. few central across bankers as well prepared as you. [laughter] the key seems to be that central banks must keep open a willingness and ability to be self-confident about saying, we've changed our mind and learned. >> yes. i think that is absolutely right. very important things about how aren'tnomy functions constant over time, and it's important that we adjust ou

francine: mervyn king was at the epicenter of the biggest exercise in crisis management in modern financialthe bank of england in 2007, pumping billions of pounds into the

vonnie: let's listen to what janet yellen had to tell mervyn king about inflation expectations. >> oneeason it is dangerous is because inflation expectations are likely to also drift down, and indeed there is some evidence -- i do not really think they have drifted down very much, but there is some suggestion, some hint that after many years now of full inflation, they may be drifting down. undesirable. very vonnie: you know the fed chair. does she sound concerned or is this a passing concern? will powell be concerned? it is easier for central banks to deal with high inflation than it is for deflation or disinflation. at the moment, that is more of a concern for central banks. the federal reserve has to be cautiousstless -- year, because if you wind up with inflation expectations going down significantly, how do you stop that? it is either through exceptionally easy policy, and it easier policy from here would mean cutting interest rates 75, 100 basis point and doing more qe, which is politically better, in myis opinion, for the fed to go even more slowly than they are saying in order

let's remember, last week, janet yellen, the current fed chair, was in new york with mervyn king, the of talked about the dangers low inflation. she mentions low-inflation expectations are probably. that is not good if you want inflation to rise. she opened the door of concern even as she continues to say low employment will help boost inflation. but the november minutes from the meeting also showed this divide and some fed officials saying they were concerned about this. a few saying it we should not hike until inflation is clearly on the path back to 2%. that is why it is a big deal as janet yellen and jay powell prepared to go before congress. let's look at the week ahead. dudley, he speaks about the economy. he will speak to more times this week. he is an ally of janet yellen, brexit -- baxter up on the gradual rate hike path. upth tax hurt -- backs her on the gradual rate hike path. orl jay powell continue this will he express more doubt or's what will he say about safety regulation? this will be the closest of the week, even though janet yellen testifies to congress, and there a

other focus this week when it comes to the fed, she will be speaking at nyu on tuesday along with mervyn kingm the bank of england. is asked toif she address this question, and if she will stay on at the fed, because she could when her term expires as chair, she will still be a member of the board. we shall see. >> will definitely be looking to her comments carefully. jason, i want to get you in on the conversation, and goldman sachs in the prediction of for rate hikes. -- four rate hikes. it's a plausible? likely,ink it's quite given the inflationary pressures you can see from the tightening and labor market. we are seeing a pretty good job gains month over month. the unemployment rate keeps inching lower and that is creating some inflationary pressure. also, there are some year-over-year fx, base effect that are likely to fade out to actually give us a bit more andde surprise for cpr other measures of inflation as we go into the next year. that will become more of a concern, especially if we get fiscal stimulus. if we get tax cuts and more money being thrown in into a tight labor market, yo