China: The First Shoe Stomps By: Mark W Adams

The other day, I talked about the Chinese Central banks having no choice but to start cashing in US T-Bills (about half a Trillion Bucks worth) if the credit crunch leaves them without enough liquidity to keep their hyper-growth economy burning. 

Today, despite denials that there was any central order from the government in Beijing, some of their banks have stopped loaning to American banks due to instability in the US economy. 

This coincides with the the central Chinese banks receiving permission to buy larger stakes in the markets and await a promised injection of capital from the government amid a steady stream of people pulling their savings out of their banks and markets -- and the Chinese banks themselves finding the relatively safer harbor of money markets more attractive than either foreign banks or stocks.

The clock is ticking on the bailout deal -- which some insist isn't necessary.  As long as the Chinese banks remain liquid, they won't start a run on cashing out all those US Bonds they own.  The new trading rules and withholding credit to US banks might keep them going for a bit longer.  But if they make a move on dumping T-Bills, it's all over.