Hi tkc,
You are welcome to disagree if you wish. It isn't a problem for me if you argue. Disagreement is constructive.
In this case, I am afraid I entirely mis-wrote part of a sentence, which is probably why you didn't understand my point!
"People's behaviour changes when money loses its value" is true, but it isn't the case I was discussing. I'm kind of astonished I wrote it that way without noticing, but I was dashing out at the time so probably rushed it. Anyway, my apologies. Now I am back and hopefully you will see what I was meaning to say - and the rest should fall into place.
What I should have written is that people's behaviour changes when the value of money increases relative to the value of other assets ie in a deflationary environment. That is the circumstance in which they will tend to hold onto their cash. In those circumstances, investment is unappealing. People hoard their cash because it increases in value simply by storing it.
So the actions of the Fed are designed to counteract this tendency. They have lowered interest rates and have issued paper in order to make hoarding less appealing. Now they have acted "irresponsibly" by suggesting they will not raise interest rates for a couple of years. So they are courting inflation. Their problem is deflation. Increasing the money supply, stimulating the economy and guaranteeing low interest rates are deliberately INFLATIONARY actions, as you say.
The zero bound is a concept associated with a deflationary environment.
High levels of inflation and stagflation are different environments to the one we face. When those conditions prevail and persist, you want your Federal Reserve to appear responsible in the conventional way. You were right to be confused!
Otherwise, I think my posts were consistent in implying the problem we face is deflationary.
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