All of your concerns are easily addressed through normal price mechanisms. Making up a scenario and then saying it can't work isn't any sort of argument. If your scenario really doesn't make sense that just means it won't happen that way.

People will make lending and borrowing decisions based one their expectations of what revenue flows and purchasing power will be like in the future. Some will make bad choices and take losses, while others will good choices and make profits. That won't be different on different monetary standards.

The biggest flaw I see in your scenario is the rate of deflation once Bitcoin is the reserve. Once it's in wide circulation, the only reasons for a major increase in purchasing power are massive loss of Bitcoin quantity or a technological breakthrough that makes us radically more productive. The first scenario is extremely unlikely (why would people be more likely to lose Bitcoin after it's established?) and the second involves a huge gain in prosperity, which would make repaying loans easier.