Hamish McRae: There's a following wind of goodwill, but very heavy weather lies ahead

There isn't much time. The new administration takes office with a following wind of goodwill from America's trading and investment partners but a headwind of a sharply deteriorating domestic economy. That the world's markets were cool in their reaction to the election of Barack Obama signalled not a suspicious response to the voters' choice but rather a grim awareness of the scale of the economic problems ahead.

In the past few days the stresses in the money markets have eased slightly, suggesting that the huge efforts by the present administration to bolster the banking system are at last beginning to restore some confidence. That is to be welcomed, though its successor will have to attend to the detail of the plans, refining and modifying them. But while this has been happening the real economy has got worse, much worse.

October car sales were a disaster. General Motors, still the world's largest vehicle producer, is seeking Federal help, saying yesterday that "time is very short" to prevent its collapse. Consumer confidence is the lowest that it has ever been, according to most surveys. The issue is not whether the US will have a recession, for it has already entered one. The issue is how long and how deep it will be.

So the first task will be to rebuild domestic self-confidence and that will almost certainly mean Federal support for industrial and commercial companies as well as the banks. That will be controversial, for it will involve using yet more taxpayers' funds to support weak business enterprises. In the first instance those funds will have to be borrowed, further increasing the country's national debt and leading to yet higher service payments in the future.

The next task will be to rebuild international confidence in the sound financial management of US finances, for the country needs to keep attracting an inflow of investment funds to cover its balance of payments deficit. At the moment the dollar is relatively strong, but that is a technical reaction to the mayhem in the markets rather than any endorsement of US policy.

From an economic perspective this is already the most difficult transition since the Second World War and in the months ahead the economic realities will get worse, not better.