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This piece from Ambrose Evans-Pritchard is about as hard-hitting an analysis of Cyprus as I have read and really makes an interesting introduction to this week’s Outside the Box. No messing around:

Capital controls have shattered the monetary unity of EMU. A Cypriot euro is no longer a core euro….

Today in Outside the Box we explore the very sad fact that once again I was unduly optimistic. My good friend Ed Easterling shows that it is quite likely that the pension shortfalls are approaching $4 trillion. And the longer we wait to deal with the problem, the worse it will get.

The biggest part of the problem, as I wrote back in 2003, is unrealistic assumptions about future investment returns. That has not changed. You can find consultants who will tell you there is “only” a $1 trillion problem. However, if you assume that interest rates will remain low and equity returns will look like they did the last ten years, then the underfunding might look more like $4.6 trillion.

The American electorate may share the same national bed, but they have vastly different dreams. In this report, our take on the election’s significance is similarly bifurcated. Anatole see it as a cathartic political cleansing allowing for a deal on the fiscal cliff, but Charles as a disaster. Arthur asks whether the Republican Party can win nationally without reconciling itself to America’s changed demographics and the realities of the new knowledge-intense economy. Will Denyer contends that an Obama win is probably bad for the dollar and gold – but he doubts that would have been different with Romney.

The Hoisington Quarterly Review and Outlook is one of the cornerstones of my reading on where the economy is headed. Van Hoisington and Lacy Hunt do a masterful job of turning data points into cogent, well-argued themes.

This month they waste no time in dissecting the Fed’s recent move to QE3 and similar efforts in Europe, arriving at the conclusion that “While prices for risk assets have improved, governments have not been able to address underlying debt imbalances. Thus, nothing suggests that these latest actions do anything to change the extreme over-indebtedness of major global economies.”

Their expectation: global recession. The only issue left to sort out, they say, is How deep will the downturn be?

While it is summer in the Northern Hemisphere, it is winter "down under." Today we turn our attention to Australia. In Endgame, Jonathan Tepper and I devoted a full chapter to talking about the problems we saw looming in Australia, and for that we have taken some heat! What's not to like about the Land of Oz? In our view, it might be the bubbles that are building. I asked Jonathan to update us on Australia, and in today's Outside the Box he gives us an in-depth look. Let me quote from a point near the end, in case you might decide to look just at the summary:

The relationship between high total public debt and interest rates is controversial (to some); and in today’s Outside the Box Van Hoisington and Dr. Lacy Hunt of Hoisington Investment Management tackle the subject head-on, in their “Quarterly Review and Outlook” for Q2 2012. They bring important new evidence to the debate, citing three academic studies (including an April 2012 paper coauthored by Rogoff and Reinhart) and an historical retrospective that focuses on the debt-disequilibrium panic years of 1873 and 1929 in the US and 1989 in Japan. In their view, the onus of responsibility for the “Panic of 2008” falls on the sometimes-slumping shoulders of the Federal Reserve, for making money and credit too easily available, and then “[failing] to use regulatory powers to check the unsound lending and the concomitant buildup of non-productive debt.”

This week I offer a main course, a veritable piece de resistance, for Outside the Box readers, from my friend Rich Yamarone. Rich is Chief Economist for Bloomberg and one really sharp talent. He helps write Bloomberg Brief: Economics, a daily notebook that comes out every business morning with an all-encompassing view of what's happening and will happen.

I want to emphasize that I do not think Spain is hopeless. Rather, it has a narrow set of limited options that will require a great deal of austerity and economic pain on the part of Spain and significant help from the rest of Europe, combined with the forbearance and patience of the bond market or massive buying of Spanish bonds by the ECB for an extended period of time. I think it will need to be the latter, as the bond market is on the brink of breaking down on Spanish debt, failing a realistic path to economic balance and growth. The way ahead is most difficult and treacherous. It appears to me that at the end of the day only ECB participation can buy Spain the time it needs. If they give Spain the time, it can get through. But the pain will then be spread to the valuation of the euro and thus the entire eurozone.