Yesterday I listened to Ron Insana and Steve Liesman gang up on Larry Kudlow about the state of the economy. It was one of the more spirited debates you will ever hear on CNBC. Without saying the word explicitly, Ron Insana was predicting deflation.

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Here is a synopsis of what Ron Insana said.

I am going to go way out on a limb here Maria. I think this credit crisis is viral and it’s spreading quickly in all corners of the credit markets.

We talked earlier this week about auction rates on municipal bonds where we are having some failures on auctions taking place with banks unwilling to take the overflow when investors don’t buy. We are going to have another crisis in munis beyond the bond auction issue.

I think ultimately when it’s all said and done, the Fed is going to have to be the bank of Japan and go to zero interest rate policy to reflate our way out of this thing.

This is far bigger, far more misunderstood, than anybody knows. This is a real crisis of historic proportions and still no one is paying full attention. In the immortal words of Casey Stengel “Don’t nobody here know how to play this game?”

When Kudlow said “I disagree” Insana chimed in “What a shock!”

What’s coming is Deflation American Style. Interest rates are headed far lower and will stay there far longer than nearly everyone thinks.

Mike “Mish” Shedlock
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