President Barack Obama laid out a plan that would change the course of the armed forces in the United States. The plan calls for the reduction of the military’s size that would limit its ability to wage long-term conflicts.

The president proposed a 14 percent decrease in troops, which would not allow it to conduct two ground wars at the same time. This would change the Defense Department’s strategies with regards to solving foreign conflicts. The plan calls for the decrease in the nation’s nuclear arsenal and delay the Pentagon’s acquisition of weapons.

If the plan is approved, the power of the United States’ military machine would be drastically reduced. It would change the priorities of the Pentagon for the next decade. The wars in Afghanistan and Iraq defined the first decade of the 21st century. Once the plan is set, the military would not be able to conduct two major operations in foreign soil at once.

The US military would have to drop up to half a million troops and its focus would be on countering terrorism as well as the challenges posed by an emergent Asia, which is dominated by China. Obama said that it would be a moment of transition. The military would be leaner but would still be sufficient to preserve US superiority over any rival.

Progress is seen in the talks over government funding and payroll tax extension as House Speaker John Boehner, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell met for an hour in the Capitol last Wednesday. They didn’t say whether a compromise was met but the meeting is a good sign that the leaders are working with each other in an attempt to solve the issues that threaten to shut down the government at the end of the week.

The Senate Democrats proposes an extension to the payroll tax cut that would drop tax income by at least $1 million. The Republicans opposed the millionaires’ tax, which was part of the previous proposals by Senate Democrats.

No details were released with regards to the new proposal that emerged from the White House meeting between the Senate Democratic leaders and President Barack Obama last Wednesday afternoon. Obama wants the wealthy to pay their fair share of taxes.

A senior administration declined to comment on whether Obama and the Senate Democratic leaders decided to abandon the tax on millionaires as part of the new proposal. White House officials were concerned about the provisions in the Republican spending bill that would keep the government operating after the week ends.

The Senate failed to extend the payroll tax break last week but there are renewed efforts to push for a compromise measure. Republicans usually are in favor of any tax cuts but they helped defeat the payroll tax break extension attempts. They don’t like how to pay for the tax breaks. Democratic Senator Ben Cardin said that the Republicans have unfair demands.

According to Cardin, the Republicans said that they would support the extension of the payroll tax but they wouldn’t support any of the offsets for it. They would also not support the payroll tax without any offsets.

Senate Majority Leader Harry Reid of Nevada said that a compromise measure would be unveiled. He got his information from Senator Kent Conrad, who is the chairman of the Senate Budget Committee. Republicans said that they were not invited to the negotiations of the compromise.

There were also some Democrats who were unsure of extending the tax break because the tax revenues from them usually pay for Social Security benefits. Some felt that their constituents need any little boost they can get from the government.

Senator Cardin said that the tax break should be temporary. Middle class families would pay at least $1,000 in taxes once the payroll tax break is not extended.

The White House ordered an independent review of loans made by the Energy Department as a response to the criticisms it received over the Solyndra bankruptcy. This came just in time when House Republicans are preparing for a possible vote next week to summon White House documents that are related to the fallen company.

White House officials said that it would look into the health of more than two dozen loans and loan guarantees made by the same Energy Department program that supported Solyndra. Republicans in Congress have been probing the company’s bankruptcy. There was evidence that federal officials were warned about problems with the company but it continued to process the loan. President Barack Obama even visited the company and praised it.

White House chief of staff Bill Daley said that the review will be done by former Treasury official Herb Allison, who supervised the Troubled Asset Relief Program that was part of the 2008 Wall Street bailout. The review would not investigate the Solyndra case but will look at the other loans worth tens of billions of dollars. It would recommend steps to solve the problems detected with the loans.

The White House refused a request made by the House Energy and Commerce Committee to submit all internal communications with regards to Solyndra. The company filed for bankruptcy earlier this year, which resulted into the 1,100 jobs lost.

Republican presidential hopeful Rick Perry proposed that Americans should be able to choose from their existing income tax rate or a new flat tax rate of 20 percent. This is part of his tax and spending reform plan called Cut, Balance and Grow.

He said that the goal of his Cut, Balance and Grow plan is to create jobs, solve the current economic problem, and at the same time generate a stable source of revenue that would help slash the deficit. He hopes that his plan would put the financial problems of the federal government in order.

Perry said that people who opt for the flat tax can scrap the current tax code. It would decrease and simplify the tax rates that Americans could file their tax returns on a post card.

His proposal would remove the Alternative Minimum Tax for families, improve entitlements, balance the federal budget by 2020, removes earmarks, and place a limit on federal spending at 18 percent of gross domestic product.

The proposed flat tax would preserve the tax exemptions for families who earn less than $500,000 a year and would increase the deduction for individuals to $12,500. It would remove the tax paid on the country’s biggest estates when property owners die. It would also remove taxes on Social Security benefits.

US stocks improved as Germany and France promised to solve the sovereign debt and euro zone’s banking issues. The Dow Jones Industrial Average raised 330.06 points or 2.97 percent to 11,433.18, which is its largest gain since August 11. It is the highest close since the middle of September.

All 30 Dow components increased. Bank stocks led the upward trend with Bank of America climbing 30 cents or 6.4 percent to $6.28 and JP Morgan Chase increased $1.60 or 5.2 percent to $32.30. This came after blue-chip index increased 190 points last week. The Dow is now down 1.25 percent this year.

The Standard & Poor’s 500-stock index increased 39.43 points or 3.41 percent to 1194.89 percent. Every sector in the index closed in positive territory, with energy, financial and material stocks getting the largest gains. The Nasdaq Composite increased 86.70 points to 2566.05.

Stocks have surged since dropping into bear market territory last week. The S&P 500 is up 11 percent since the drop last Tuesday. Trading volumes were relaxed last Monday with 3.9 billion shares changing hands in the New York Stock Exchange composite volume. This marked the lowest volume of the month and below the daily average of 4.4 billion shares a day.

Standard & Poor’s downgraded the U. S. credit rating to double A-plus from triple A, which added more uncertainties to the global market that’s already plagued by concerns about debt issues and slow economic growth.

There’s not much difference between triple A and double A-plus ratings. Double A is considered high-grade credit while triple-A rating is prime credit. The possibility of getting paid by a double A credit is very strong while with a triple A credit is extremely strong.

As a world economy, the United States is a special case. Even though its credit rating was downgraded, a lot of investors still want to hold on Treasury and dollar. This is the reason why it managed to get away with the credit rating downgrade without the need to pay more to get a loan.

Fitch Ratings and Moody’s Investors Service left didn’t change their credit ratings on the U.S. and it wouldn’t adjust it anytime soon. Fitch stated that a downgrade by a single rating would not affect the market because investors still consider the Treasury bills as high-quality credit.

Luxembourg is rated triple-A but the United States has more advantages over it. The former is part of the euro zone, which means it doesn’t have a large printing press to back its debt.

Before Congress agreed to a compromise on the debt limit, the U. S. stock market was in a panic. It dropped last Thursday but investors are optimistic that it would pick up after the federal government prevented a default from happening.

Investors are still facing a bleak future with possibilities of recession and severe global economic slowdown. They considered the United States to be the safest with its short-term Treasury market and stock market.

The United States is more attractive compared to the other markets. Europe has more debt problems than the United States. The troubles in Greece caused a minor panic in the region. But the major problems are caused by the debt issues of Portugal, Italy and Spain. It could lead to the disbandment of the European Union and the euro. Some of those selling U. S. stocks are coming from European banks who want to increase their liquid assets.

China is experiencing an economic slowdown at the moment. Its central bank has increased the interest rates four times and raised bank reserve requirements 11 time in the past 18 months so that it could battle inflation.

Japan has a debt to GDP ratio that is two times that of the United States. Its economy is starting to pick up after the natural disasters that struck the nation but it is still not fully functional and needs to borrow more.

President Barack Obama signed into law a compromise plan that would increase the country’s debt limit a few hours before the midnight deadline. This would prevent a default from happening that could be disastrous not only to the United States but also to the rest of the world.

The Senate passed the plan a little after noon last Tuesday. It enforces spending to be implemented over the next decade. The bill was approved in the Senate with a 74.26 vote. It only needed 60 votes to be passed.

President Obama said that the measure would ensure that the nation live within the budget. The compromise was reached last Sunday by Obama and congressional leaders of both parties. It would prevent the default from happening and decrease the deficits by at least $2.1 trillion for the next decade.

It is still unknown whether the deal would prevent a credit downgrade for the United States. According to ratings agency Standard & Poor’s, it is looking for a bipartisan plan that would decrease the deficit by at least $4 trillion.

The debt limit plan didn’t include any tax or entitlement reform measures but it left the door open for both. It provides a debt ceiling increase of $400 billion and it would have another increase of $500 after September.

House Speaker John Boehner got the Republicans in the House of Representatives to approve the debt limit bill with a vote of 269-161. The compromise bill will give the federal government the ability to borrow $400 billion dollars more and let President Barack Obama ask for another $500 billion in the next couple of months.

Congress said that it would try to stop the second installment of debt ceiling increase. Another set of increase would be available after a special committee composed of twelve members identifies corresponding cuts in spending. The committee must come up with its proposal by Thanksgiving of 2012 and Congress must hold a vote on the recommendations before December 23.

Democrats are wary about the bill because it didn’t have any revenue or tax increases. The Republicans are also concerned about the bill because military spending will have a huge cut. Most of the Democrats didn’t cast their votes until the last minute as a sign of protest.

The process left everyone in the House distressed. Speaker Boehner had to hold two closed-door meetings where the GOP leaders had to convince the conservative freshmen and other members who were firm in their stand that spending cuts must be the core of any deal.