The conceptual railroad

Let's say your credit card debt is around $16 billion. You've maxed out 822 cards, but another 35 have been approved. One of your hobbies is toy railroads. Why not borrow another $4.5 billion and get started on building the Dreamrailer?

That would be due north of loony if you were you. But if you were the state of California, it would be dandy.

From Zero Hedge:

California's budget deficit may be $16 billion (up from $9 billion in January), the state's cities may be keeling over and filing for bankruptcy left and right (Stockton and Mammoth Lakes), and overall container traffic at the Port of Long Beach may have dropped 7.2% in May compared to last year, but at least California is about to get its own monorail. Well, maybe not monorail, but certainly a high speed line between Los Angeles and San Francisco for the low, low price of at least $4.5 billion in debt to start (and much, much more to actually end). The winners: Keynesians and labor groups. The losers: anyone who has ever taken math for idiots. 

You see, the rail line won't be built because California needs a train from Los Angeles de Mexico to San Francisco de Gay Pride. It's the idea of it -- a hypothetical railroad. A concept that will attract money.

From USA Today: "California lawmakers approved billions of dollars Friday in construction financing for the initial segment of what would be the nation's first dedicated high-speed rail line connecting Los Angeles and San Francisco. The state Senate voted 21-16 on a party-line vote after intense lobbying by Gov. Jerry Brown, Democratic leaders and labor groups." And while nobody really expects the train to actually be built, here is the real reason for passing the legislation: "The bill authorizes the state to begin selling $4.5 billion in voter-approved bonds that includes $2.6 billion to build an initial 130-mile (210-kilometer) stretch of the high-speed rail line in the Central Valley. That will allow the state to collect another $3.2 billion in federal funding that could have been rescinded if lawmakers failed to act Friday." 

In summary, just passing the bill, gives California a $3.2 billion federal bailout while the actual use of funds may or may not ever appear (or money is on the latter). If still confused think Greece and Germany, because Federal tax collections were just used to give California a very fungible cash injection. Where the money ends up now is anyone's guess.

Here we see the 1930s New Deal's leaf-raking schemes raised to the nth power. Instead of the government providing jobs via a "conservation corps" and painting post office murals, the federal behemoth will borrow money so California can borrow money to create jobs in connection with a superfluous train route.

Maybe some of the jobs created will involve clearing and grading the right of way; possibly there will be a few jobs laying track, in case the project actually gets that far. But you can bet a double-eagle that the overwhelming majority of the jobs will go to the bureaucratic superstructure. You can't create a 500-mile bullet train (or pea shooter train) without legions of planners, lawyers, study commissions, public relations crew, and support staff.

What better example could there be of why our "real" economy is in the intensive care unit while banksters and hedge fund managers rake in all the chips? Leave to one side for the moment that everyone is using debt -- play money. The bigger problem still is that capital is not invested in projects that, at least potentially, could create wealth. It goes to whatever will act as a magnet for bailouts and new loans. 

We've reached the ludicrous stage where not only inadvertent failures get rescue money ultimately derived from taxpayers and foreign-held bonds, but we're intentionally designing failed enterprises from the ground up. Everybody knows the LA-SF railroad is pointless in real-world terms, that it will end up swallowing money, not creating it.

Who cares? All that matters is that some federal agency with a mandate to support "clean" transportation and "green" jobs will shovel money to California -- a true shovel-ready project, this -- and the Golden State's politicians can put off the day of reckoning long enough to extend their terms of office.

[Link: Zero Hedge]  

Keywords: [California] [high-speed railroad] [job creation]

Ghost Money's author does not claim to know what he's talking about. He is not an investment advisor. This site is for entertainment, if it can even manage that.