What's the most important thing the military should do while going through this downsizing period?

Great question and one that should weigh heavy on every Commander's mind. I went through downsizing early in my career. Thankfully I de the cut. I never forgot how it felt to wonder if I would be let go. I say the most important thing would be: Is this decision for the good of the Army.

Fully understand the strategic impacts; 2nd and 3rd order effects by downsizing too fast, too soon in conjunction with on-going world-wide events and take into consideration as to critical MOSs required.

Contractors, Useless equipment, Unnecessary and useless training, Printing out every single thing that comes down the pipe, overseas bases, We could make millions through metal recycling alone. 

Leadership Development.

Not management training, not diversity training, not (fill in the blank) training...LEADERSHIP Training and Development. When the smoke clears and you see what the powers that be have left you with, you'd better be ready to develop and train what you've got. As Mr. Rumsfeld famously said, "You go to war with the Army you have, not the Army you want." (or something close to that) What will ALWAYS win the war (and consequently, the peace), is the squad, the fire team, the individual Soldier carrying out his or her mission. Better have some folks able to motivate, inspire, train those troops.

I think they should discontinue the automatic promotions.  I never supported this idea since its conception.  All it does is allows those less than stellar Soldiers to simply wait things out (while staying out of trouble) until their time arrives, then they simply become less than stellar leaders.  Promotions should be based off a Soldiers' past performance, appearance, attitude, proficiency and ability to adhere to the Army Values. 

Stop hiring LT's. 

The military needs to look very cautiously at who they are getting rid of. I remember the last time we went through a large reduction in the early 1990s and unfortunately the good leaders got out and we were left with the inefficient ones who knew that they could not succeed in the outside world.

I'm with the good LT on the networking issues, but I'll go a step further. We need to seriously rethink the degree to which we depend upon networked computing. Much of our MC and Intel systemry now depends upon client-server systems that cannot exist while on the move (I firmly believe winT is a fairy tale until I see it functionally demonstrated while on the move). Map and acetate doesn't fail when the power goes out, you just get a flashlight. CPOF will not function without continuous, safe DC power. Many of our systems now cannot be used in a 'stand-alone' role, meaning it's a paperweight until the Taj Mahal TOC gets set up. Maneuver battalions, particularly Combined Arms Battalions, can move hundreds of kilometers a day under good conditions. No time to set up a TOC, they just roll. But then they can't get onto the CPOF BUB, so that BC would be in trouble. Got to slow down, set up the TOC for four or six hours so the boss can talk. Same thing with DCGS.

Always remember that EVERY Soldier is of value.  Treat each one with respect and dignity and the transition will be much easier to cope with, the Services should not lose sight of that when downsizing.  When a person feels valued they can usually cope much, MUCH better through the challenges of employment and relationships.  A very good prescription for preventing depression and/or suicide among our troops.