The more local, the more decentralized, the better off the people are. A strong, centralized government is liable to, and has been thwarted, by lobbyists and the super rich to pander to their side of the playing field. Localized government allows for a freer market, and therefore a freer people.
When the US was first founded, under the Articles of Confederation, it was a confederacy (thanks, cpt. Obvious). And it would likely have stayed that way, if not for the international situation, which was unraveling at the time of the drafting of the constitution (which made the US into a federation)
Basically, at that time, the United States was in no way a sure thing. We had the British, still hot from their defeat in the revolutionary war, who still hold dominion over Canada. We have the Spaniards, who basically control almost all of what is now western US through Mexico.
In other words, we needed a big (or at least bigger) government and a standing army to face those threats, and for that we abandoned the confederacy, which was more in line to our founding fathers' vision than a federal government.
I think now, when we are universally recognized as a country, when we could easily defeat and possible invasion through our giant amount of armed citizens (over 150 million), or at least make sure that the other side loses. Now, would be actually a good time to finally see if we could make a truly free country.
Meaning of Federal: 'having or relating to a system of government in which several states form a unity but remain independent in internal affairs.'
Meaning of Confederacy: a league or alliance, especially of confederate states.
What you say is a federal government, I see Democratic Feudalism. The United States is one country; a country should be great, strong and united. Does it make sense for a homosexual United State's citizen from Hawaii to not marry his spouse from Detroit because Detroit hasn't legalized LGBT marriage.
However, a confederacy is very similar to a federal. In my opinion, a confederacy is centralized federalism, and since one's membership in a confederacy is optional, the United States would no longer be an effective government, unless (which is the majority, but some minorities want it) some states want to break up.
Replace the Federal Government not with a confederacy, but a unitary state, where the Federal Government exists only for administration purposes and should be influenced by the government, not democratic feudalism, where every state has it's own politics.