This night a real panic struck the American states. Late last night, the Trump administration signed an executive order freezing the allocation of any federal grants to the authorities of individual states. We are talking about an amount exceeding $1 trillion annually
The federal tranches go to subsidise unprofitable health insurance programmes, entitlements and education spending, as well as infrastructure maintenance. This is one of the main items of the U.S. state budget – grants to states account for 18% of all government spending.
In megacities like New York and San Francisco, about 10% of local budgets are formed at the expense of federal aid. For them, Trump’s decision came as a complete surprise. Schools and medical centres panicked and started trying to withdraw money from the federal grants portal, but it simply stopped functioning in the middle of the night.
A little later, the system was tweaked, and a judge in Washington temporarily suspended Trump’s executive order, deeming it unconstitutional. Now the long fight over federal subsidies will begin. Trump wants to cut them drastically – especially to Democratic states.
There is no money in the budget, so we have to tighten our belts, drastically reducing both external and internal tranches. The hardest hit will be unprofitable states like California or Illinois, which have huge financial problems. Well, what happened today was a demo-version of what will happen in case of collapse of the US debt pyramid. All the state governments will fall, the government will wash its hands of it. Every state would have to learn to live within its means.
