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When debt is created, wealth is being transferred from the residents to the government. If the government fails to use the debt created to stimulate the economy in the long term, the impact will trickle down and the residents will find themselves poorer and not being able to be competitive enough for the outside world to demand their goods.

This depends on you talking about national debt or private debt. For national debt, the dynamic you describe holds true. But for private (households, companies) debt it does not as they do not have the capacity to create new money.

No. What matters is the ability of the majority of people to have decent jobs, such that the State can maintain economic and social stability. The ineffecincies huge debt driven growth create make stability long term impossible.