The gentlemen's agreement, for it was far too vague and casual to be called a deal, was that so long as Blair guaranteed there would no U.S.-led ganging up on China to revalue its currency, Hu would attend.

That was fine with Blair, whose experience of G8 summits - which bring together leaders of Britain, Canada, France, Germany, Italy, Japan, Russia and the United States - is that they are not the right kind of forum for detailed negotiation.

And Blair, whose turn it is to chair the G8 process this year, wanted his summit to focus on two issues that he thought could help him with his own restive left-wing and with Europe - debt relief for the world's poorest countries and global warming.

Blair, it should be stressed, believes in these causes, and is as much a man of principle as can be expected of a successful modern politician with ambitions to be seen as a world statesman.

So Blair was happy to assure Hu that China and its overvalued currency would not be put on the spot at the Gleneagles summit, but that China's president would be simply be welcomed into the group of his peers among world leaders.

China is happy for rich countries to pat themselves on the back and assure themselves they are doing the right thing for the world's poor, and also happy to add its voice to sonorous rhetoric about global warming, so long as China does not actually have to imperil or slacken its breakneck pace of economic growth.

The problem is that Blair might have done the wrong thing, and that the current state of the global economy desperately needs an agreement from the leaders of the world's richest countries and main trading nations to address the gruesome imbalances in the global system.

This week, the Bank of International Settlements in Basel, Switzerland, which is the central bank of the central bankers, issued a rare but rather solemn warning that the world's financial system is at risk of a serious disruption because of the rapid accumulation of public and private debt.

It cited the swollen budget deficits in the United States, Europe and Japan, and also noted that interest rates had been held down too long in an attempt to spur economic growth, and it was time to curtail the stimulus of cheap credit.

"It is time for a measured withdrawal of the stimulus put into the system," the BIS said in its annual report. "Time might well be running out."

From an institution that normally cultivates the blandest forms of understatement, this is very close to a panic attack. In particular, the BIS wrung its hands over the need for the United States to get back to balanced budgets, and the deep unlikelihood of the Bush administration doing so.

President Bush, who heard Wednesday that the U.S. annual gross domestic product growth rate had just been revised upward again to just short of 4 percent, might feel this is a touch unfair. The United States is bearing the weight of the global economy on its shoulders, growing as Europe and Japan stagnate, acting as everyone's market of last resort.

But the BIS report was firm. The Bush deficits, on both the federal budget and the U.S. current account, "could eventually lead to a disorderly decline of the dollar, associated turmoil in other financial markets, and even recession."

The BIS is speaking for many other central bankers and Treasury officials and financial leaders who see the same warning signs, along with academic economists.

David Dodge, the governor of Canada's central bank, issued a similar warning in an interview with the Financial Times Wednesday, is which he made clear next week's G8 summit was missing the urgent point that something had to be done at a very high level to tackle the looming financial crisis.

"The G8 summit should be focusing on the issue of how in the medium term we are going to address global imbalances and how we will work with systematically important players in other parts of the world to deal with this issue," Dodge said.

The issue is not complicated. The world's economy is boldly going where no economy has gone before, at least in peace time. The Big Three of the United States, Europe and Japan are simultaneously in unusually deep budget deficit. So the public debt has never been so large.

At the same time, private debt is exploding. U.S. consumers are going deeper into debt so they can keep on importing $2 billion a day more goods than they export. Oh yes, and oil is sticking at a price of $60 a barrel.

Household debt in Japan and the United States is well over 100 percent of GDP, and much of this has been incurred through fast-rising property values, just at a time when it looks as if the global housing bubble might be about to deflate very fast, if not burst.

Earlier this month, The Economist weekly calculated the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100 percent of those countries' combined GDPs.

"Not only does this dwarf any previous house-price boom, it is larger than the global stock market bubble in the late 1990s (an increase over five years of 80percent of GDP) or America's stock market bubble in the late 1920s (55percent of GDP). In other words, it looks like the biggest bubble in history," the journal commented.

A large part of the problem is the way East Asian economies, led by Japan and followed by China, are adopting a traditional mercantilist approach to the global economy as a zero-sum game in which they manipulate their exchange rates to maximize their exports, their market share and their foreign exchange reserves.

It would therefore make much sense for Hu to be asked to explain to the G8 summit at Gleneagles just why China has for the past two years been plunging $200 billion a year into manipulating the global currency markets, and for Japanese Prime Minister Junichiro Koizumi to explain why Japan's efforts to keep the yen cheap have accumulated in Tokyo over $1 trillion in U.S. Treasury bonds and securities.

But under Blair's gentlemanly agreement, this is not going to happen. The G8 will instead be invited to focus on the second-order issues of African debt and global warming. This is not quite Nero fiddling while Rome burns, but it may look that way if the bubbles burst and the skies darken with chickens coming home to roost.

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