The positive impact of falling oil prices continues to be overshadowed by the astonishingly swift pace of the decline. The former, a boon for consumers of energy, the latter, a disaster for producers, especially marginal producers and the banks and hedge funds that lent them money.

Big banks are beginning to acknowledge that not only will they suffer from having made risky loans to high cost producers, particularly of shale gas and oil, but GDP will likely suffer, as well, as job growth and capital spending in the oil patch slows down ... or even goes into reverse.

So, in essence, the precipitous drop in petroleum, and other energy products, has quickly become too much of a good thing.

And, after a solid start this morning, that fact is, again, evident in the stock market, where energy shares and banks are being buffeted and driving the major averages lower.

1973 in Reverse

Some of us are old enough to remember the oil shocks of the 1970s. They began with the Arab Oil Embargo, early in the decade, more than doubling the price of oil and gasoline. That, coupled with others factors, touched off the Great Inflation of the 1970s. The Iranian Revolution put an exclamation point on the increase in oil prices in 1978/79, as oil and gasoline, again, shot higher, shocking the global economy twice in a decade, leading to double-digit inflation, unemployment and interest rates.

The opposite is happening today. This oil shock may provide some tailwinds to the economy, though it would have been a more reliable one, if the speed of energy's decline hadn't threatened growth in oil producing regions of the country, whiich today extend well beyond the traditional oil patch of the 1970s, and before.

Indeed, though this topic has been discussed, ad nauseum, in these posts, deflation is the primary global economic threat, coupled by real recession risk in much of the developed world. Oil is increasingly an important factor in that looming condition.

Inflation, and deflation, each inflict an economic pain unique to the conditions they create.

Inflation leads to a wage/price spiral, while deflation leads to growth/price collapse.

The latter is harder to cure than the former.

Thus, the Conundrum

The world's central bankers know how to fight inflation. They simply raise rates until a recession ensues, demand falls off, and prices decline. With deflation, as we have seen, the fix is not so straightforward.

The US has led the world from the brink of depression back in 2008/09, but the rest of the world never really followed the Fed's lead. So now, we face a growing problem that could engulf the world economy.

Falling oil prices simultaneously represent a symptom, and a cause, of the issue at hand.

2015 is starting off on a worrying note, as stocks, interest rates and commodities are clearly singing from the same hymnal ... warning, each in their own way, about the risk of deflation.

If stocks continue to fall, one must re-think portfolio exposures, from the composition of a portfolio, to necessary hedges, to opportunities that exist in a full-scale deflationary environment.

It is still to early to radically alter the thesis, in the US anyway, that economic growth will remain decent and that US-focused stocks are the place to be.

But patience can wear thin and too many disappointments on that front, from falling energy prices, to falling interest rates, and now, to falling wages, that one must be more vigilant than in recent years.

An interruption to a secular bull market is always possible. It is not yet probable, but a wise investor cannot rule out a mid-course correction that requires swift but thoughtful action.