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I think he was most concerned about debt owed to foreigners. If foreign bankers or states are owed money that is not paid back in time, they can exert pressure on the government, even military pressure. Or, they can buy the resources of the country and control them to their advantage.
Money owed to citizens of the country can also cause problems. There can be so much in interest that they is not enough left for essentials. Taxes can only be raised so high without harming the economy and putting the government in danger of revolution or else of bankruptcy.

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Q: Why would George Washington warn the country to avoid debt?
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