And, I think his description is generally correct, as far as it goes.
But, I'm not sure that demand for money has actually increased that much. I think, instead, it is more accurate to say that the demand for money has continued to grow at a normal pace, and we have prevented that money from entering the economy in the ways that it normally would have, mostly from shutting down much of the mortgage market. In the M2/NGDP ratio he shows here, it isn't M2 that has been unusual. It's NGDP.
From late 2007 to September 2008, the Fed was engaging in emergency lending to banks that were dealing with the liquidity panic in the private securitizations market. During that time, the Fed was "sterilizing" their emergency lending by pulling cash out of the economy. They were basically replacing loans to the Treasury with loans to banks - selling Treasuries and buying bank loans. But, their stock of Treasuries was running low by late 2008, so QE, together with interest on reserves, was basically a switch from sterilizing the emergency loans by removing cash from the economy to sterilizing them by removing credit. Instead of selling Treasuries, the Fed began to "sell" excess reserves, which meant that banks "loaned" cash back to the Fed instead of to a private borrower.
Mostly, in practice, this meant not funding mortgages, and the reduction in mortgages was enforced by tight standards from the GSEs and vague threatened liabilities coming from new regulatory pressures. It seems to me that there is a significant amount of profit to be made right now at the bottom end of the mortgage market. So far, most of the profits at the low end are being claimed by institutions buying and renting underpriced properties. I would have thought some form of lending would have developed in spite of the regulatory pressures. I don't know if part of the problem is simply that the destruction in equity that resulted from the collapse in demand that followed the collapse in mortgages has created frictions in that segment of the market. Or, possibly, lenders are just that convinced that low end borrowers are too risky now. Or, possibly, they don't see them as inherently risky, but they foresee continued macro-volatility, which is keeping them out of the risky segments of the market. None of those lender-related issues seem plausible to me. It could be that the constraining factor is the lack of equity. If that is the case, the slow process of time and inflation healing that loss of equity could create positive feedback that creates a boost in housing regardless of how much the Fed tries to pull it back.
An expanding money supply and credit market will unleash a tremendous amount of pent up pressure for real investment and balance sheet repair, targeted at households with the least wealth, if we can somehow let it happen. The supposed demand for money is a red herring. The main demand for money has been coming from the Fed, because we have blocked its natural destination.