Balances in money market funds are also not “cash on the sidelines.” Securities are simply evidence that money has been intermediated from a saver to a borrower. Once the security is issued, it exists until it matures or is otherwise retired. If I have $1000 “on the sidelines” in Treasury bills, it represents money that has already been spent by the Federal government. If I sell this T-bill to buy stocks, somebody else has to buy it, and there will be exactly the same amount of money “on the sidelines” after I buy my stocks than before I bought them. It is simply a fallacy of non-equilibrium thinking to imagine that money “goes into” or “comes out of” secondary markets in securities.So maybe we aren't in equilibrium. I think it is possible to say that people or groups that traditionally have x% of their assets in stocks have X% minus something in stocks and a higher then typical allocation to cash. It is also very likely that this ratio could be effected by the fact that stock prices have dropped. Another tautology.
I think part of the problem is that we are thinking of cash as both an asset class and as a medium of exchange. People have also bid up the price of Treasuries and when or if they decide to move on to another asset class, another asset bubble will deflate. At which point some of it will simply evaporate.