Exodus?

It has begun, the exodus of massive Chinese investments in US dollar denominated assets. I said in a prior post that I had a hunch they would begin this just after the Olympics, but the plunger gang was able to push the price of Fannie and Freddie up temporarily halting the exodus. But Fannie and Freddie fell back and then we saw China construction company withdraw holdings and now Chinese regulators have put up the stop sign for borrowing by American banks. This is a big deal no matter how you slice it, but it's hard to tell just how big. This much is easy though, if the lending all stops at once, then it's big and bad!

This from Reuters.

Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

The Hong Kong newspaper cited unidentified industry sources as saying the instruction from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to U.S. banks but not to banks from other countries.

"The decree appears to be Beijing's first attempt to erect defences against the deepening U.S. financial meltdown after the mainland's major lenders reported billions of U.S. dollars in exposure to the credit crisis," the SCMP said.

A spokesman for the CBRC had no immediate comment. (Reporting by Alan Wheatley and Langi Chiang; editing by Ken Wills)