Consumers Might Save Themselves to Death

The personal savings rate exploded in May, marking yet another month of consumers' newfound fascination with the space below their mattresses.

According to the Bureau of Economic Analysis, May's savings rate came in at 6.9%, up from 5.6% in April. May's saving rate was the highest since 1993.

Going back a few years -- and monthly for 2009 -- here's how much money savers have stashed away:

Source: Bureau of Economic Analysis.

That's a staggeringly fast jump. To go from basically zilch to a 16-year high in a little over a year is bound to shake things up a bit.

And it has                     
While largely ignored, the savings rate is one of the most important statistics to follow today. Right now, the bill is coming due on a multidecade debt-fueled rampage. How much we save will determine how quickly we can repair that damage and shift toward an economy that saves, invests, produces, and thrives.

But saving this much this quickly is almost like going from one extreme to the other. Since 70% of our gross domestic product is made up of consumer spending, rapidly hoarding money takes a huge bite out of economic output. The shift has been so rapid and so violent that businesses haven't had time to adjust. Consumers are saving like it's 2009, but businesses were built for 2005.

It's a lopsided trade-off: Consumers need, and want, savings to adjust to the new reality, but the businesses that employ them desperately rely on a world where everyone spends themselves into the ground, refinances, and does it all over again.

So this mad dash to cash, while necessary, is pummeling the economy and stifling business. That, in turn, leads to less output, less employment, and lower asset values in stocks and real estate. That causes people to want to save even more as the outlook worsens. That hurts business even more. And around and around we go.

Eventually, it turns into a self-fulfilling cycle:

• People are saving more because the economy is a mess.
• The economy is a mess because people are saving more.          

Saving is, of course, a much-needed development. It's probably the best thing that's happened in the past two years. But saving this fast, in an economy that isn't built for savers, is brutal. And it'll take time -- probably a lot of time -- to sort through to find a new balance.

Act 2
This nasty state of affairs is compounded further by our overwhelming debt load.

As I showed last week, we have an Everest-sized mountain of debt to take care of. So even if consumers eventually aspire to spend and invest in new businesses, their abilities will be obstructed by the debt of years past.

Money isn't going to be put into productive investments or trips to Wal-Mart (NYSE:WMT) and Target (NYSE:TGT) -- it's going to head to the debt-servicing companies. That's necessary, to be sure, but it darn well stomps all over the "green shoots" of recovery.

All of this is just to say that economic growth over a long period of time -- not just a few months -- will probably be quite subdued at best. Cash is hibernating, and when it finally wakes up, it'll go toward repaying debt. It isn't the end of the world, but it's a recipe for a brutal long-term hangover.

So what should I do with my money?
With pitiful economic growth, investors could do worse than shift their focus to high-dividend-paying stocks. The idea here is simple: If the economy is going to stall, you might as well get paid to wait. Here are five companies you might want to consider:

All of these are well-established companies that continually write large checks to their shareholders. In an economy like this, it's hard to ask for much more.

We had a monstrous bubble pop, and it's going to take a monstrous effort to dig ourselves out. We're going through the equivalent of an economic fever. It's designed to kill off the disease and bring us back to health, but, geez, what a miserable feeling while it lasts.

Related Foolishness:

• Why It Could Take Years to Recover
• Here's How Messed Up Our Financial System Is
• Where Did All the Bailout Money Go?