A new year begins and, soon, a new president will take office in the United States. Expectations of change are high, as thousands of analysts have already observed. And, evidently, the challenges are enormous, particularly on the crucial economic and foreign policy fronts.

Obama's first task would be to moderate the elevated expectations, otherwise the honeymoon period will be brief. Experience tells us that there is a big difference between the rhetoric of change and the reality of actually carrying it out. Fudgy campaign promises are made to get elected, and are quietly forgotten after the official is safely in office.

Trying to implement change is a dangerous endeavour, as the master of realpolitik theory, Niccolo Machiavelli, taught the prince many centuries ago. It is an arduous struggle against entrenched interests, and creates countless enemies. There are many who would like to see the new president stumble, and he is going to be careful not to give them that satisfaction.

Obama has a lot going for him. He has good looks, a smooth style, oratorical gifts and a hundred times more brainpower than Bush. In addition, he has a name that public-relations people would kill for. They would have to work hard to create one that rolls off the tongue so easily in many languages.

Given the challenges, trying to please the electorate will be difficult. America has become a politically fragmented society. There is a great deal of polarisation, partisanship, and clustering into social groups. Moreover, anxiety about the economic future and America's place in the world is increasing.

Apart from the electorate at large, there are many groups and vested interests whose contentment has to be taken into account because they can, if crossed, cause political trouble. An agenda for change would dictate their marginalisation, but pragmatism means that they are unlikely to be ignored.

The past fashions the present and constrains what can be achieved in the future. Mistakes committed by the previous administration cannot be undone in short order. And, unfortunately, errors of commission and omission under Bush's reign have caused considerable damage on the important economic and foreign policy fronts.

In foreign policy, the Bush administration has squandered America's chance to sustain its uni-polar position in the global geopolitical system. The invasion of Iraq was a major strategic error, compounded by mistakes in other areas. And the "war on terror" campaign has, according to many security experts, done little to counter terrorism but has seriously damaged the US's ability to exercise soft power.

Invading Iraq was part of an overall strategic plan to establish America's hegemonic role in the Middle East and to ensure predominance in Asia as a whole. It was intended to have a major impact on surrounding countries, and an important effect in central Asia. Pursuing such goals is understandable for a major power, except that the planning and execution were seriously flawed and the net result was a diminution of American supremacy.

Barack Obama has the mission of trying to arrest the decline of US influence and prestige. Given that we now live in an increasingly multi-polar world of competing power centres; the task ahead is one of building alliances based on mutual interests. Soft power is becoming progressively more important, compared with hard military power.

The choice of Hillary Clinton as Secretary of State appears to be based primarily on political considerations rather than her suitability for the job. She has limited experience in foreign affairs and is a notorious opportunist, susceptible to bending with the wind and leaning in favour of sectional interests with a political agenda of their own. This is unlikely to serve broad US strategic interests that are badly in need of far-sighted vision, realism and strong direction.

Obama also inherits a financial system barely recovering from a severe crisis, and an economy struggling to exit a harsh recession. Bad policy decisions at the Federal Reserve and the Treasury, as well as the lack of adequate regulatory oversight — over many years — created the conditions for the crisis to develop. Now, the government is deeply involved in trying to resolve the situation.

The incoming administration will continue and extend the programmes already in place. There are unlikely to be any novel departures from current policies. The two major appointments, Timothy Geithner at the Treasury and Lawrence Summers to head the National Economic Council, come from the same stable as previous officials. Their selection was well received on Wall Street, which means that the moneymen don't feel threatened.

Tighter regulation is inevitable but the betting is that, ultimately, it will be sufficiently watered down to leave plenty of leeway for profitmaking activities. There is some concern that Obama may be leaning towards higher taxation and protectionism, however the likelihood is that pragmatism will win out. That said; it is wise to monitor the rising political pressure to create higher trade barriers, despite the fact that the self-inflicted economic costs of doing so are substantial.

Iraj Pouyandeh is a strategist and senior portfolio manager at LOM Asset Management. He manages the LOM Global Equity Fund. For more information on LOM Asset Management please visit www.lomam.com