How should investors play this global economic turmoil?

The U.S. still has many problems to deal with but most of the threats to sustained economic growth are coming from our intransigent neighbors.

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Europe, Japan, Russia, China and Brazil are all, effectively in recession. Emerging markets like Indonesia, Malaysia, and Nigeria are suffering greatly as oil prices continue to plunge. True, the worldwide glut of crude is the dominant issue in driving prices lower, But flagging demand for energy products is also a source of trouble, reflecting the magnitude of the slowdown across the ponds.

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Japan has taken one step forward, economically, and two steps back, ever since its stock and property bubbles burst at the very end of 1989. In the ensuing 25 (yes, 25!) years, Japan's fiscal and monetary policy-makers consistently underestimated the impact of the implosion and never responded with sufficient force to cushion the blow. In the last 18 quarters, Japan has shown growth in 9 of them and contractions in the other nine. The most recent back-to-back declines in GDP would be surprising in the wake of massive stimulus efforts by the Bank of Japan, were it not for an incredibly ill-timed increase in the national sales tax, which is now being blamed for both quarters of falling GDP.

Japan is not alone when it comes to inexplicably poor policy responses.

European Central Bank President Mario Draghi, while promising full-fledged quantitative easing, can't seem to muster enough political support from member nations to take the bold, and increasingly necessary steps, to beat back a looming recession and the very real threat of deflation on the Continent.

Shipping rates are plunging. Prices for industrial metals like nickel and iron ore are hitting multi-year lows reflecting a precipitous drop in manufacturing demand, again, mostly outside the U.S.

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Global inflation expectations are falling. JPMorgan recently put out a piece suggesting that, even in the U.S., inflation expectations are back where they were in 2009, at the very depths of the financial crisis!

This is largely the result, in my view, of imported disinflation, or deflation. Deflation can be both a symptom and a cause of underlying economic deterioration and right now, it is both. It is a symptom of waning demand in vast parts of the world but could be the cause of forgone consumption if prices declines become embedded and prompt global shoppers to hold off buying things until prices fall even further. That becomes a vicious cycle and one that needs to be avoided at all costs.

And yet, just the other day, a member of the ECB said that he STILL doesn't see the need for aggressive quantitative easing!

While the U.S. has grown, the rest of the world has lurched from crisis to crisis, from the European sovereign debt crisis to Japan's deep drops in GDP, to the commodity crash that has thrown resource-rich nations into a both economic and fiscal tailspin , from Moscow to Melbourne and among consuming nations from Beijing to Brasilia.

There is a certain insanity about all this. No longer is the U.S. simply the best house in a bad neighborhood, it's about the only house worth living in, at the moment. Lacking a full-scale and coordinated effort to fight recession and deflation among our global counterparts, the U.S. is at risk of watching its own house go to pot as the rest of the neighborhood fails to keep up with the Joneses.

The Federal Reserve needs to put the "Neighborhood Watch" sticker in its window and keep an eye out for threats to its own home.

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Overseas economics has never been the central driver of Fed policy and, in many respects, is well outside its statutory mandate. But Janet Yellen recently conceded that the effects of Fed policy on the world economy should be considered when implementing changes, while others have voiced the concern in a different way … that the Fed needs to be mindful of negative influences outside our house before we venture out on our own, without regard to the risks in an increasingly dangerous neighborhood.

For investors, I believe this underscores my argument that interest rates stay lower for longer in the U.S., rising not at all in 2015. Given the seasonal, cyclical and fundamental positives for stocks, it also underscores the notion that investing in domestic equities will still be a good plan for 2015. Having said that, the increased pressure on governments in Japan and Europe would also suggest that some ETF exposure to German stocks (EWG), or Japanese equities (EWJ) would also be a good idea, as the pressure to stimulate and reflate grows day by day.

Japanese President Shinzo Abe, who has just called early elections, has also suspended, for 18 months, the next leg of the planned sales-tax increase. The Bank of Japan will do more. Japan's largest pension funds will buy more stock. If only the ECB goes all in, we could see explosive rallies in Europe and Japan.

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I still like our house best, though I am taking small steps toward other parts of the neighborhood.

But my neighborhood watch is on and at the first sign of additional trouble elsewhere , I would be running very quickly back home.

Commentary by Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street. He also editor of "Insana's Market Intellgence," available at He delivers a daily podcast, "Insana Insights," and a long-form weekly version, both available on iTunes and at Follow him on Twitter @rinsana.

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