1. The demand for money is the demand to hold money. People are building up their cash holdings by selling other assets and reducing their disbursement of income on spending. Demand to hold money does not affect interest rates. Along with the stock of money, the demand to hold money determines money’s purchasing power.
2. Yes, federal government borrowing has increased, but the net increase in demand for credit has been relatively small. The Fed has increased its holding of Treasury Securities from less than $500 billion in 2008 to almost $1.7 trillion today and it is adding $45 billion a month. Foreigners, mainly central banks, have increased their holdings from $3.3 trillion in 2008 to $5.5 trillion today.
My quote that you cite is not referring to the demand side, but to the supply of credit by bank fiduciary issue. I didn’t say there was “no demand” for credit, but only that demand for credit hasn’t increased sufficiently to start pushing up interest rates.
3. The Fed can directly manipulate only the Federal Funds Rate. It does this by providing more reserves to banks. For other interest rates to be affected by expansionary monetary policy, the banks must issue fiduciary media and create credit and supply it into the various credit markets. In normal times, banks do just that with additional reserves they obtain. But, in depressions they tend to hold reserves and restrain from issuing fiduciary media and creating credit.