States vs. Feds

There is a war going on but it is not one we are reading about in the news.

As tax revenues decline, the federal government can operate with deficits. By law, states and counties must balance their budgets. Given that federal law and regulations create significant program requirements and expenses for state and local government, growing deficits will exacerbate the tension between the federal government and states and between states and counties.

Throughout state and local government, you have millions of people who work hard and make the day-to-day operations of government go, often with surprisingly little resources. Watching more than $10 trillion of bailouts go to a handful of large banks is deeply disturbing to them. Capping bankers compensation at $500,000 is cold comfort to a city manager or state legislator struggling to raise a family on much less.

Before passage of the stimulus package, California was not reimbursing counties for mandated programs. California counties were threatening to withhold payments to the state or sue. Right before house passage, a group of eighteen governors issued a press release supporting the Administration’s proposal. If you look at the list, it is the ones that should be hurting the most.

My read of the stimulus package is that it was designed to provide a great deal of money to ease the financial pain that the states and municipalities are experiencing. It is not described that way — but I think that is what it is and what got it passed. The stimulus package is expected to cost $789 billion. The financial stability plan is expected to add $2.2 trillion to the $8.5 trillion authorized by the US Treasury and the Federal Reserve for bank bailouts. Behind the scenes, the states had to get their half a trillion or so to go along with the bankers getting another $2.2 trillion.

After playing with the numbers, my intuition says that this money is enough to push the state problems out to September, maybe October. The states will need a lot more money in the 2010 federal budget which will go into effect on October 1, 2009. That means the House and Senate appropriations committees will be a hot place to be this summer and the September reconciliation could get pretty wild.

We now have legislators in several states that have introduced legislation to require state administration to set up electronic payment systems using gold.

Now we have rumbling about state constitutional rights in New Hampshire, Missouri, Arizona and Oklahoma:

We are seeing reports of as many as 22 states in total introducing such legislation. is now maintaining a resource page on the trend.

Within the decision making circles of state and local government may be where the war for the hearts and minds of this country will be decided. A network member told me tonight they heard a state legislator announce they had persuaded state administration officials to move state funds to local banks.

Remember, state legislatures can pass laws to try to stop federal lawlessness. State and local government (including pension funds) can also stop financing lawlessness. Which would be a good thing because then we could reinvest our essential government reserves and pension funds in things that have a better chance of having and holding real value.

Related Reading:

GoldMoney Bill in New Hampshire

Gold Currency Bill in the Colorado Legislature

Gold Currency Bill in Indiana

State Sovereignty for New Hampshire (more here)

Missouri Claiming Sovereignty under 10th amendment – HR 212

Arizona Warns Feds to Not Tread on 10th Amendment

Maybe Oklahoma Started a Domino Effect with Its Legislation?

Individual Rights Protected By The State Are Non-Negotiable says Rep. Dan Itse
Daily Newscaster (16 Feb 2009)

See State Budget Troubles Worsen
Center on Budget & Policy Priorities (10 Feb 2009)


  1. Dear Catherine,

    I admire you deeply and consider you a great source of inspiration.

    Regarding the financial management of the States, each State should have its own bank; such bank could serve as depository for all of the State’s revenue and then serve as a source of funding or underwriting for all of the requirements of all of the municipalities within that State. The funding could be INTEREST FREE or at least for a rate as cheap as that currently paid to most States by the FEDERAL RESERVE BANKS like Goldman Sachs and JP Morgan whenever the States deposit the PEOPLE’S money into Goldman Sachs or JP Morgan.

    It is interesting to learn that most States “invest” their funds to earn a miserable 1.5-2.0% return with those banks only to see those same banks turn around and “lend” the PEOPLE’S money back to the municipalities or counties within that same State at a rate around 5 or 6%, pocketing, freely and without risk, around 3% per year of the PEOPLE’S money. This information is detailed for every State within its Comprehensive Annual Financial Report – CAFR.

    Your readers should become more familiar with those statements only to learn that enormous amounts of money owned by the States are currently “managed” by transnational corporations benefiting those entities much more than the PEOPLE in those States. It would be best if those funds owned by the States were invested directly within the States without the “help” and middle man “fee” of the Federal Reserve Banksters. Thank you.



  2. Catherine-

    Back in 1973, I took Public Finance fall of my senior year; I found my spiral notebook two summers ago and marvelled at how things were back then.

    In the early 1970s Mississippi scattered all state funds throughout the banking system in non-interest bearing accounts, which helped local capital formation at a lower cost to the borrower. Also, most southern states ran small annual surpluses that were deposited in much the same fashion. If surpluses got too high, there would be a cry for tax reduction.

    And, state taxation was much more consumption based back then, especially vehicle tags (still is, I believe). The Miss. threshold for state income taxes was $12,000.00 (married), which equates to around $60,000.00 today.

    Right now, we have our new governor in NC who is proud to dispense $787MM in slush this week while the state projects a $2B deficit. Times have changed, for sure. I just wonder what will be the tipping point, Mr Gladwell.

  3. Catherine,

    These events were completely off my radar, so thanks for calling attention to them. We will know that such actions are of real value if they are portrayed as being “irresponsible,” “unpatriotic,” or even “dangerous” in the propaganda … I mean mass media … outlets. Wait n’ see.

    — JB

  4. Catherine, with this stimulis. Would it not have been wiser to address the bank issue first. My question are they afraid to let us know what is happening with the banks. Is that why Obama is delaying/?????

  5. Catherine,

    This video was just posted at and I thought you might want to included it with your secession information

    Pennsylvania is in the Fight to Reclaim Sovereignty Under the 10th Amendment!!!


    The following video features state Representative Sam Rohrer, from Pennsylvania’s 128th state congressional district, explaining the separation of power and authority of the sovereign stares from the federal government. The video was actually part of a call to action, originally posted by by Pennsylvania Revolutionary, patriot, and C4L member fadestyle. The link to fadestyle’s original blog:

    Our PA State Senators are calling out to their constituents for help!

    The video Featuring Pennsylvania Representative Sam Rohrer

    Video (5:18):…ew=11464&cpg=1

  6. Well, it’s primarily a republican or fiscally puritanical approach that led to this mess that states find themselves. In Arizona, for example, republicans have enforced these draconian budget measures insuring that many aspects of the state are chronically underfunded even in good times. And when bad times hit a state finds it’s a self-perpetuating cycle, with reduced revenues forcing more layoffs, which further exacerbate state revenues as people have less money to spend.
    The states need to change the laws, and take a prudent and sensible approach of allowing themselves to incur budget deficits during hard times. Not to mention totally restructure the way they finance state government.

  7. I believe the states retain the right to mint coinage. Wouldn’t this be another way to exert their financial independence and foster return to sound money? I thought the recent round of state quarters put out by the federal govt. to be a bit of a slap in the face. Maybe it’s time to take them up on it for real. Rights are meaningless unless exercised – – this is just one of many in the Constitution to call them out on.

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