"First, post the 2008-09 crisis, the world economy is pregnant with multiple equilibria—self-fulfilling outcomes of pessimism or optimism, with major macroeconomic implications. Second, incomplete or partial policy measures can make things worse. Third, financial investors are schizophrenic about fiscal consolidation and growth. Fourth, perception molds reality."As you can see it all depends on market mood. Apparently markets are not taking their Prozac and that's why we are in this conundrum. Translating into English, bad situations (bad equilibria) may happen if governments take indecisive action, markets are not sure that the fiscal consolidation (which he seems to support, and the IMF is certainly pushing) will work, and this generates perceptions that are self-fulfilling.
No lesson about the problems with fiscal consolidations leading to recessions (no matter what people may think about it). Also, nothing about the need for central banks to buy government debt and maintain interest rates down (irrespective of markets feelings about it, like in the US). No lesson about how a worsening income distribution and a deregulated financial sector push private agents to unsustainable debt positions. And this is the guy rethinking macroeconomics? Here is my New Year resolution: stop reading Blanchard; if this is what he learned, he obviously is clueless.