King defends low interest rates: Masa highlights Mervyn King's latest speech in which the BoE governor provides a personal assessment of the inflation targeting regime over the past twenty years. Predictably he defends low-interest rates in the run up to the crisis. How vulnerable is Japan's economy to the islands dispute? Markets in Asia were apparently very skittish earlier today in partdue to fears that earnings could be affected by tensions between Japan and China over the Senkaku/Diaoyu islands. Kate's post looks into the geo-political risks and concludes that a slowdown in China's economy is probably a much more concrete risk to Japan than the land dispute. Welcome to the "Desert of the Real": Is our economic reality really what we think it is? Izzy delves into financial pastures unknown as she addresses Christopher Cole's latest note on fear, volatility and the perception of safety. Cole argues that the market is now the most infinitely complex impossible object ever imagined, with paradox a fundamental part of the investment decision process. In other words, prepare to take the red pill... Sherlock Holmes (herein played by Buchheit) says: debt reprofiling: David taps into the latest from Buchheit (he who helped mastermind the Greek restructuring at Cleary Gottlieb) and Gulati on the options now facing the eurozone's sovereign debtors and those holding the purse strings. The logistical problems of Grand Bargaineering: Cardiff revisits Goldman's latest note on deficit reduction, focusing this time on the plausibility of a "grand bargain" being arranged in the short time available to avoid a fiscal cliff. A resolution is all the more urgent, says Cardiff, now that even the IMF agrees that fiscal constraints may be ineffective. IMF warns eurozone on capital flight: Unless the eurozone resolves its capital crisis, European banks" balance sheets will contract severely, further damaging growth and pushing unemployment beyond already record highs in the region, according to the IMF. In its global financial stability report, the IMF concluded that capital flight from the eurozone's periphery to the bloc's core, driven by fears of a break-up of the currency union, had sparked "extreme fragmentation" of the euro area's funding markets, reports the FT. US sues Wells Fargo for more than $600m: The US Department of Justice has sued Wells Fargo for hundreds of millions of dollars, alleging the bank engaged in "reckless" lending practices that defrauded a government insurance programme, the FT reports. Germany throws doubt on BAE talks: Berlin signalled it was ready to walk away from the negotiating table on Tuesday and let BAE Systems and EADS" €34bn deal to create the world's largest aerospace and defence company collapse, reports the FT. Google offers to brand web search results: The company has made a bid to avoid an antitrust war with Brussels by offering to label information from its in-house services that are included in its search results pages, according to people familiar with the submission, the FT reports. Senior Chinese officials snub IMF meeting: Beijing's finance chiefs have pulled out of annual meetings of the IMF and the World Bank in Tokyo, amid wrangling between China and Japan over a group of islands in the East China Sea, the FT reports. Markets: Worries about the health of the global economy, and its impact on corporate earnings, are again rattling investors, forcing equity benchmarks and industrial commodity prices slightly lower, writes the FT's global markets overview. The FTSE All-World index is down 0.3 per cent as the FTSE Eurofirst 300 sees a loss of 0.2 per cent and after the Asia-Pacific region dipped 0.8 per cent to a one-month low. US stock futures point to Wall Street stabilising after its 1 per cent slide on Tuesday. Risk appetite across other asset classes is fairly mixed, however. The dollar index is following its tendency to gain ground when equities struggle, adding 0.1 per cent. Yet its Australian namesake, which is usually highly sensitive to stock market nervousness, is up 0.4 per cent to $1.0237. Gold is down $1 at $1,763 an ounce.