The following excerpt suggests that capital flight from America may have begun:

The WSJ cites a new report from the Bank for International Settlements (BIS) that says global banks have been "funneling more funds out of the U.S. than into it" over the last 12 months. The Swiss-based BIS, often referred to as the central bankers' central bank, says that banks are voting with their feet and sending funds from U.S. branches to their offices abroad "as they turned to safer assets amid the global credit crunch," Reuters reports. From 2000 through mid-2007, global banks sent more than $1 trillion more into the United States across their balance sheets than they took out. That all changed with the subprime crash; since then, banks have taken some $321 billion more out of the U.S. than they sent in.

LeRoy: The interesting question, of course, is whether this trend will accelerate, and if so, what the expected consequences would be for the American economy. I suspect they will not be pretty.

"Bank of China, the largest holder of Fannie and Freddie securities among Chinese banks, saying earlier this month it sold or allowed to mature $US4.6 billion of the $US17.3 billion it held as of June 30 -- which was down from more than $US20 billion at the end of last year. " (WSJ)

They have to be careful as that does devalue the dollars they hold.

I think foreigner banks and large investors own about 1.5 trillion of Freddie and Fannie (FnF) debt. Pulling out a few billion out isn't a big deal. Right now the issue is not so much a sell-off of FnF debt, but simply an unwillingness to buy more. That means FnF can't continue to hold up the housing market in the face of the recalculation of risk that's paralyzed commercial lenders.

By the way, if you think this is bad, wait until the boomers start retiring. They own much of the remaining 3.5 trillion or so of FnF debt in their retirement accounts. When they start withdrawing money from their accounts in stead of contributing to them, the other shoe will drop.

But the article I was citing noted a much larger flow of capital out of the United States:

From 2000 through mid-2007, global banks sent more than $1 trillion more into the United States across their balance sheets than they took out. That all changed with the subprime crash; since then, banks have taken some $321 billion more out of the U.S. than they sent in.

LeRoy: Almost a third of a trillion, in other words. Not exactly chump change, anymore. And you are right that the 'other shoe will drop' when the Baby Boomers start retiring en masse. But that is now almost upon us; it is no longer ten years away. The oldest Boomers became eligible to start collecting Social Security earlier this year....