A leading Swiss banker said yesterday that popular political pressure could bring about a return to the gold standard by the United States in the next decade.
Rainer Gut, chief executive officer of Credit Suisse, one of Switzerland's three largest banks, told a National Press Club audience he does not consider returning to gold-backed currency a wise or probable action. But he conceded that if the question "Do you want a dollar as good as gold?" were put to an American public disenchanted with Reaganomics and high interest rates, such a move could become a reality.
Examined in the light of Swiss experience, the claims of gold bugs, politicians and economists that a return to the gold standard will increase confidence in the currency, boost savings, hold down inflation and result in rapid economic growth are suspect, Gut declared. He said that confidence would return only gradually.
Under a return to a gold standard, people first would convert their dollars into gold, thereby removing large amounts of dollars from circulation, Gut said. This would result in a smaller money supply, higher interest rates and higher unemployment, he asserted.
"Instead of the hoped-for cheapening of money and boost to growth, recessionary tendencies usually accompanying the return to more stable economic conditions would emerge," he said. Proponents of the return to the gold standard rarely talk about the painful adjustment period of stagnation that generally has accompanied a return to gold, he added, and cited historical precedents to support his thesis.
The Council of Economic Advisors came to a similar conclusion in its annual report issued this week: "The evidence presented indicates that previous gold-standard periods before World War I were characterized by 1) lower average inflation and money supply growth; 2) greater fluctuations in inflation, money supply growth, and output growth; and 3) higher unemployment rates than in the period 1946 to 1973 . . . It is far from clear that gold standards produced better overall results than those produced during the post-World War II period."
"In short, the notion of combatting inflation by a return to gold is like putting the cart before the horse," Gut declared.
Rep. Ron Paul (R-Tex.), an ardent gold advocate, said later he never thought that opponents of a return to the gold standard "would be compelled to send in a Swiss banker to discuss the issue." He said this is a sign that the gold standard is a "powerful political issue whose time will come." He called Gut's speech "contradictory" because, although the banker said bad things about gold, he also said the paper standard in effect in his country since 1973 had led to inflation and unprecedented, extraordinary fluctuations in interest rates, as well as the highest unemployment rate since the 1930s.