The central bankers quadrille is an elaborate and elaborate and difficult dance. The rhythm is set in the counterpoint between economic growth and inflation, the orchestra is pick up and the steps change from minute to minute. Today your partner may be an elegant continental bureaucrat, tomorrow a union leader and the day after a galumphing harrumphing politician; and always, every move is watched by the critical wallflowers of the media who never get to dance.

The primary care of the central bankers of the industrial world is the economic well being of their own countries but jointly they also bear responsibility for the economic system of the entire globe. To a far greater degree than ever before the world is linked and served by one financial and economic system. Were the economies of the industrialized world to falter, or the web of financial mediation to collapse there would be no shelter for any nation, whatever world it belongs to.

Monetary and interest rate policy are the bankers prime tools and the watch over the financial system is their first consideration. Although the Federal Reserve was criticized last month for supposedly tending the needs of Wall Street before the needs of taxpayers, it was exactly those taxpayers whose interests were best served by the sale of Bear Stearns. The institutions whose balance sheets might have been shot full of holes by a Bear default would have responded with a severe restriction of credit but they would have survived. But the restriction of credit and the vast damage to confidence that would have ensued would have traumatized the American economy and the first victim would have been the overextended US consumer.

Monetary and credit policy are the chief tools because of their application, the relative speed with which they can work and the degree that the bankers can utilize them without resort to the political system. If a political response had been required for Bear Stearns the investment house would have been in default that Monday morning and the world would look very different today.

Fiscal policy, the other class of weapon in the general economic armory, is the province of governments. It is a slow cumbersome tool in comparison to the weapons of the central banks. The political process cannot act with the alacrity, and the response required by a Monday morning market open is not in its nature. The direction and focus of fiscal policy often owes more to electoral considerations than economic logic and the actual effects of policy can be wholly unintended.

The most notorious example of political misdirection and action is of course the Smoot Hawley Tariff law of the early 1930s which was passed by the American Congress and signed by President Hoover despite universal condemnation from the economists of day. The retaliatory nature of the law was answered in kind by its target countries and the diminution of trade and wealth did much to turn a recession into the Great Depression.

A more recent example is the Community Reinvestment Act passed in the early 1990s in the United States. Its purpose was admirable, to encourage home ownership in communities whose residents had been unable to qualify for mortgages under the standards of the day. But by pushing lenders to make loans which could only be accomplished by relaxing credit standards the result was a boom in weak loans which dissolved at the first serious pressure from higher interest rates and a slowing economy. The law, however, had little to do with the packaging by institutions of sub-prime debt into the vast array of securitized products whose doubtful worth is now clogging the arteries of the financial system.

So how have the Central Banks been doing? The cratering of the American housing market has been in train for more than two years. The securitized products and sub prime mess has been with us since last August, almost three quarters of a year. Consumer confidence in the US has fallen 20 points since last September as the stock market took a dramatic dive early in the year. Retail spending has been volatile but it has not broken.

The dramas and problems of the past nine months are well known. But the economic facts need to be stated as well. European Union GDP is growing at 1.5%--2.0% a year; China and India have hardly paused in their headlong industrialization, the world economy remains vibrant though under increased strain. Even in the United States, the fount of the sub prime debacle, 95% of mortgages continue to be paid on time. A credit crisis, the like of which has never been seen before, has been seen off, at least in its most dire manifestation. If the last three months of job reports signal the beginning of a contraction it is one of the most gentle starts to a recession on record. Doom is not in the air.

The bankers have learned their new steps with speed and facility. There is no better instructor than reality.