Last Thursday the Federal Reserve released its quarterly Flow of Funds data, current through December 2011. One of the more popular headlines from this data concerns the record amount of “cash on the sidelines.” Through Q4 2011, nonfarm nonfinancial corporate businesses held $2.23 trillion in liquid assets on their balance sheets. As the argument goes, this must be a sign of pent-up demand just waiting to be unleashed on the market.
The chart below shows liquid assets as a percentage of total nonfarm nonfinancial corporate business assets since 1952. By this measure, the “cash on the sidelines” argument is far less compelling.
via The Myth Of Cash On The Sidelines – An Update | The Big Picture.