Our disagreement appears to be this. You believe that zero interest rates lead to bubbles. I believe that excess liquidity is responsible for bubbles. They frequently both happen together because that's how the Fed tries to stimulate growth and spending.
My example of the Fed with high interest rates and a lot of QE was a way to see where our disagreement would appear. It's similar to the great recession where there were interest rates lower than they are now, but because the private sector wasn't extending credit (less Cash + Credit); there didn't appear to be any asset bubbles.
The volume of mortgage backed securities is based on who can and want to get loans. During the great recession it was hard to qualify for a mortgage even though many people wanted to do so.
I appreciate you trying to get to a shared understanding. I don't have too much time, so just the short version:
> The volume of mortgage backed securities is based on who can and want to get loans. During the great recession it was hard to qualify for a mortgage even though many people wanted to do so.
"Want" is a difficult word. I want a private island, but I can't afford one. So my contribution to effective demand for private islands is zero. In the same sense, I don't think the effective demand for mortgages was particularly high during the great recession. But anyway, we agree on the observation that low interest rates and low mortgage volumes can go hand-in-hand.
One point where I think we differ is the direction of causalities in central bank behavior. My point is that central bank QE causes low interest rates (but low interest rates don't necessarily cause QE). The upshot is that while "low interest rate policy, no QE policy" is possible, "high interest rate policy + QE policy" is not possible. The two policies would be in logical conflict with each other.
My example of the Fed with high interest rates and a lot of QE was a way to see where our disagreement would appear. It's similar to the great recession where there were interest rates lower than they are now, but because the private sector wasn't extending credit (less Cash + Credit); there didn't appear to be any asset bubbles.
The volume of mortgage backed securities is based on who can and want to get loans. During the great recession it was hard to qualify for a mortgage even though many people wanted to do so.