US stocks are getting hammered in early trading as uncertainty over the Chinese growth story sends investors to the sidelines. The S&P 500 (^GSPC) and the Dow Jones Industrial Average (^DJI) are both down over 1.5% and the yield on the US 10-year (^TNX) note has risen over 2.6% for the first time in nearly 2 years.

The People's Bank of China (PBOC) triggered the latest sell-off after it in effect told participants in the Chinese banking system that they would be left to their own devices in handling an apparent liquidity crisis.

"At present, the overall liquidity in China's banking system is at a reasonable level, but due to many changing factors in the financial markets and also because of the mid-year point the requirements for commercial banks in liquidity management have become higher," the PBOC said in a statement released on its website earlier today.

Overnight lending rates have exploded in response to the the PBOC's non-action. The Shanghai Composite Index (^SSEC) fell 5.3% with the Hang Seng (^HSI) dropping 2.2%.

As Breakout co-host Matt Nesto says in the attached video the concerns bedeviling the Chinese economy should be familiar to U.S. investors. "There are banks over there reporting a quadrupling in their non-performing loan ratios and that's why their hand-braking on the lending between each other."

Of course it was banks refusing to lend to one another due to worries over exposure to bad debt that caused a near siezure in the U.S. banking system in 2008 and more of the same over the last two years in Europe when exposure to Greece chilled overnight lending.

The reality of collapsing growth in China has crushed commodities. Copper is nearing 2 year lows, oil is sliding and the less said about the price of gold the better. Not coincidentally the rate on the U.S. 10-year Treasury spiked to over 2.6% in early trading.

In a world of uncertainty cash is king. About the only global asset seeing gains recently is the US dollar which is now at two-week highs. The perception is that the global central bankers may be losing their grip over the system; a prospect that makes sitting out the volatility increasingly appealing.

As one Wall Street wag put it earlier this morning,"we're going to need bigger sidelines."