Green shoots died on vine

John Crudele

The Federal Reserve seems to fi nally under stand the true nature of the economic mess in which it finds itself. Now if only the White House would get clued in, we'd take the first step to ward solving our problems.

This past spring I ex plained what I thought might happen.

The economy was showing some signs of life. But the gains seemed to have more to do with the fact that businesses were coming out of winter hibernation and starting to do things -- buying some comput ers, paving a parking lot, springing for new jerseys for the com pany softball team.

Any spend ing is a good thing.

Hiring new workers, of course, is the most ideal way to pump life into an economy because this action ripples throughout other businesses. Once someone is hired, he will spend his salary somewhere.

And the recipient of that spending will start spending -- and so on. It's been nearly a year and a half since Fed Chairman Ben Bernanke started seeing "green shoots" in the economy. But since the economic crocuses bloomed this year, companies have been hoarding cash, not spending it.

Certainly, when people were panicked in 2008 and 2009 they didn't spend the way they were expected. That led to what could have been this year's problem: Because of two straight years of sub-par spring economic growth, a lower level of activity became the new norm for statisticians.

Then, when the economic growth righted itself a little this spring, the computers were happily surprised and seasonally adjusted the growth to look better than it really was.

Just by going back to more normal pre-Great Recession levels, the economy tricked the government's statistics -- and economists, and Wall Street -- into thinking business was actually starting to boom.

This gave the perception that things were getting better.

The job market improved modestly over the past few months. In fact, it was shockingly bad when you look behind the curtains and see how many optimistic assumptions were baked into the numbers.

The Fed now seems to get it. "The economic outlook had softened somewhat and a number of (Fed Open Market Committee) members saw the risk to the outlook as having shifted to the downside," according to the minutes of the June 22-23 meeting.

The Fed also said it saw no need to do anything more to stimulate the economy (primarily because there's nothing left for it to do) even though it believes business conditions will remain weak for years, hiring will stay restrained and there might be deflation, meaning asset values like real estate will continue to decline.

The problem isn't just that the economy is in a recession. It's also broken.

That's why the Obama administration's massive stimulus spending and the Fed's near zero interest rates have had little impact.

jcrudele@nypost.com

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