I don't understand why the money supply has to keep increasing. If the bank lends £100 into existence, and you have to give £110 back, you can just shine 110 shoes at a pound each, rather than 100, and pay it back.
It only has to keep increasing, if the borrower is relying on capital gains to pay it back; in that case the house price will have to rise from 100 to 110. Rises in asset prices are an illusion, if everything goes up every year, it doesn't mean we're producing more, we're just inflating the currency. But banks like it, because it gives the illusion of a pay rise every year.
On the gold standard issue, the original standard was fully gold backed. ie for each 100 oz the bank said it had, it had 100 oz. It was WW1 that killed it; after that they only had 60 oz for every 100 oz they were supposed to have.
If you go back to the gold standard now, with all bank debts bailed out, the price of gold is about $15,000 an oz. and a loaf of bread is about $100 or so. I've made those figures up, but it's very high (ie dollars very worthless) because of the scale of the banks debts. The problem is putting the price up to $100 without a revolution. I personally don't think they'll manage it: ie the yanks will start shooting bankers long before it gets to 100 a loaf.