What if I told you the most trusted currency in the world once became nearly worthless overnight? Not because of war, not because of conquest, but because of fraud so massive that it helped in bringing down one of the greatest empires of its time. My name is Ari Van Gemran. I am a student of history. I run a real estate investment fund, and I am your host today for the Timeless Investor Show, where we explore timeless lessons from history's greatest financial rises and falls, the great operators and builders of the past, and epic investors of today. Today's story takes us to a mountain in Bolivia that produced more wealth than anywhere else on Earth. But that wealth came with a curse that would ultimately destroy the Spanish Empire from within. This is the story of the Potosi Mines scandal. And is at its heart a story about why trust is at the center of finance, and why trust in the hard metal currency world of the past is infinitely more important today in our financial ecosystem, and why economies that operate at the speed of trust can be derailed brutally and swiftly by anything. This is also one of my favorite eras of history. There's something about the stories of the Spanish in the New World, Hernan Cortez's encounter with this fundamentally different and sort of alien culture to this very staunch Catholic warrior culture of Spain, these epic tales of him entering the Aztec temples and thinking he'd found himself in a den of devil worshippers. And yes, I know, the European arrival to the New World was an unmitigated disaster for the people already there. But it is nonetheless an interesting period. In fact, somebody should probably write something about how the Aztec Empire essentially dissolved from within, surrounded by rival nations that actually eagerly joined the Spanish in tearing down their own oppressors. Anyways, I digress. I love the era of history. I've been reading it since I was a kid. I love it. But our story here takes us south into the land of the Incas. Potosi was known as the mountain that ate men. So picture this. It's 1545, high in the Bolivian Andes. Spanish conquistadors discover something that will change the world forever: the Cerro Rico, the rich hill of Potosi. And this wasn't just any silver mine. At its peak, Potosi produced nearly 60% of the world's silver. To put that in perspective, this single mountain pumped out more precious metal than entire continents. The Spanish referred to it as the mountain that eats men, and for good reason, millions of indigenous workers died in its tunnels. But for the Spanish crown, it was the foundation of global empire. Spanish silver coins minted at Potosi became the world's reserve currency. They were trusted in London, Istanbul, Manila, anywhere merchants did business. These coins financed Spanish armies, built their fleets, and sustained their empire across four continents. But here's what you have to realize: the system, even though it was a hard metal currency system, was still built on trust. Because here's what made the Potosi scandal so catastrophic. Spain had become addicted to silver. By the early 1600s, the Spanish crown wasn't just spending the silver they had. They were borrowing against silver that hadn't even been mined yet. Think about that. Spanish banks and Italian financiers were lending money based on the promise of future treasure fleets, ships that hadn't sailed, silver that was still in the ground. And meanwhile, you had these frustrating English pirates that were sabotaging the network, but nonetheless, this was what it was built upon. The entire imperial system, the armies in the Netherlands, the fleets in the Pacific, the bureaucracy across four different continents, was financed by credit secured by future Potosi shipments, other mines as well, but Potosi, remember, being the mother load. Spain had, at this point, imperial overreach in the extreme. They were fighting wars everywhere against the Dutch, against the English, against Ottoman expansion, all of it funded by borrowing. And this worked as long as two things remained true. The silver kept flowing, and people trusted that Spanish silver was worth what it claimed to be. So when the Potosi fraud was exposed, both assumptions collapsed simultaneously. Brutal. Here's what happened. By the early 1600s, something sinister was happening inside the Potosi Mint. Local officials had discovered the ultimate get-rich quick scheme. They realized they could quietly reduce the silver content of the coins without changing their weight or their appearance. Debase by 10%, pocket the difference. Debase by 20%, make even more. And this, interestingly enough, many examples in history of governments inevitably debasing their own currency. Spain didn't do it, guys. They didn't do it. This was not the Spanish crown debasing currency to fund wars. This was theft, pure and simple. A few corrupt officials stealing from the entire global economy. Okay? And the reason the story is interesting, we I love to talk on this show about imperial overreach, debasement, real assets, the value of real assets and fiat economies, whatever. This is an interesting story because it really highlights the trust mechanism. But let me explain how these guys did it. They take the required amount of pure silver, but they would mix in cheaper metals. The coins looked identical. They felt the same weight, they bore the official royal stamps, but they were lies. For years, millions of these debased coins flowed out of Potosi and into the global economy. Spanish treasure fleets carried them to Europe. Merchants accepted them at face value. The fraud was basically invisible. By some estimates, coins from certain years contained 20 to 30% less silver than they were supposed to. That is not an accounting error. That is massive. And for quite a while, nobody noticed. But here's the thing about fraud, Ponzi schemes, being a liar. It always gets exposed. Always. And the first cracks appeared in the trading houses of Sevilla and Amsterdam. Merchants started noticing something was off. The Potosi coins felt different. They wore down faster than they should. When you tap them, they didn't ring with the clear tone of pure silver. They sounded dull, muffled. Smart merchants started testing. They'd weigh batches of coins. They compare Potosi silver to coins from other mints, like Mexico City. Slowly, suspicions grew. And then came the acid test. Literally, merchants began using acid to test silver purity, and the results were devastating. Potosi coins consistently showed lower silver content. But the smoking gun, when coins were melted down for bullion, a common practice, the truth was undeniable. There was simply less silver than there should be. Word spread like wildfire from merchant to merchant, port to port, trading house to trading house. Potosi silver was compromised. By the way, it's not just Potosi silver, it is the Spanish crown's silver. Important. Confidence cracked. And once it cracks, it is very hard to repair. Just ask anybody who's ever lied to anybody, do they believe you as easily the next time? No. Now magnify that a thousandfold, right? A thousandfold. The Spanish crown has been perpetrating some sort of fraud on the entire economy, and now they're on to it. So imagine you're a Spanish official in Madrid watching this unfold. You've got armies fighting in multiple theaters, you've got fleets to maintain across the Pacific, you've got a massive bureaucracy to fund. You have a global church to defend, and all of it depends on credit backed by silver that people are now refusing to accept. Remember, they were not just living off silver production. They'd already spent next year's silver. And the year after that, Italian bankers had been happy to lend against future shipments because Spanish silver was the most trusted currency in the world. But when that trust evaporated, so did the credit. And overnight, Spain went from being the richest empire in history to being unable to pay its bills. The army in the Netherlands, unpaid. The treasure fleets, no money to outfit them. The colonial administration collapsing. This is what happens when an empire leverages itself to the maximum based on the assumption that the good times will last forever. And unfortunately for the Spanish, it's not totally their fault, right? There was fraud. But it's sort of their fault. And by the way, the armies in the Netherlands being unpaid, we hit on that in the sack of Antwerp. Those armies were unpaid. There's some parallels there. The army sacking Antwerp, destroying a center of finance in the Low Countries. Why? Unpaid. Was it related to this? I think so. Think about what happened next. If you were a merchant in 1640 and you heard that Potosi coins might be fake, what would you do? You'd stop accepting them or you'd demand a discount. Better yet, you'd insist on coins from trusted mints or pure bullion you can verify yourself. And this is exactly what happened. Potosi coins began trading at a discount. Then other Spanish coins became suspect too. If officials could debase coins at Potosi, who's to say it wasn't happening somewhere else? Merchants started rejecting Spanish currency entirely in favor of other options. The most trusted currency in the world was becoming worthless paper, or in this case, worthless metal. But remember, the entire system was built on borrowing against future shipments. And when that silver lost credibility, it dried up instantly. Spain defaulted, not once, but repeatedly. After all, what banker in their right mind would lend to a country that had defaulted five times in this short period of time? So, when the scandal finally exploded into public view in the 1640s, the Spanish crown was horrified. They launched investigations, arrested officials, and executed the perpetrators. An interesting side note, we talk a lot today about regulatory capture, right? And regulatory capture can mean many things. You know, the Moody's officials giving bad ratings, whatever. We understand the notion of regulatory capture. The first investigators sent by the Spanish crown were actually paid off by the fraudsters. Legit regulatory capture going on here, guys. But eventually the crown will have its justice. And when they executed them, they didn't just execute them, they did what's known as drawn and quartering. The perpetrators were drawn and quartered. One of the most brutal forms of execution imaginable. The crown had to send a message, but it was too late. Trust, once broken, is nearly impossible to restore. And when you've built your empire on credit, losing trust means losing everything. Spain still had silver mines, they still had treasure fleets, but they no longer had trust. And without trust, even the richest empire in history was turned into just another failed state. And their enemies, England, France, the Dutch Republic, seized the opportunity. Spain's decline was swift and irreversible. It is very difficult to pick the pieces up after something like this. Okay, what are the timeless lessons here, right? Because we we tell these historic stories, but there's a reason we talk about these stories. They are history rhymes, right? And I've said it and I'll keep saying it, and it's the thematic of the timeless investor, and it informs the way we think about investing today in the United States, in real assets. History rhymes because people don't change. And so this story is not really just about Spanish history, it is about every financial system that's ever been created. Currency, whether it's gold, paper dollars, or digital assets, is fundamentally about trust. And when that trust breaks, the system collapses always. Okay. Now, we have a lot of different viewers of this show. So the folks that are hard, like hard metal enthusiasts will say, well, that's, you know, that's not true. Well, it is true because if the coins themselves are debased, they lose trust, right? So there is a trust element to like you're trusting that the gold is worth something, especially if it's an actual currency. I understand today's a little different. The Bitcoin maximalists who listen to this show will say, Ah, but Bitcoin is a trustless asset. Sure, I get it. I've read the Bitcoin standard, I've read The Creature from Jekyll Island, I've gone deep into this topic. Bitcoin relies on trust too. And I'm gonna get flack. I don't care, I'm just gonna say it. You trust that everybody else will continue to ascribe value to Bitcoin. Okay, so that it is still a trust-based system. You are just trusting in something, you are trusting in the communal belief that Bitcoin has value. Okay, that's that's I've said it. I would love to hear dissenting opinions on all points in this. Hit me with it, it's totally fine. But the point is we operate in a system of trust. Trust in the law, trust in exchange, trust in the good, like, well, the law, right? Really at the end of the day, the law. The law will enforce contracts and ensure things happen. But when the trust breaks, the system collapses always. And there's a deeper lesson here about leverage and imperial overreach as well. Spain didn't just fail because of the fraud, they failed because they borrowed against the future to fund present ambitions. They borrowed against the future at a massive scale to pursue imperial overreach, which is a classic thematic in history. It happens all the time. That should sound familiar. Think about our modern world. We live in a system of pure fiat currency. Our money has no intrinsic value except the government's promise that it's worth something and society's collective belief that it is worth something. And just like Spain, we are currently borrowing against future tax revenues to fund present spending. National debt is growing faster than the economy, and our deficits assume tomorrow will be better than today. What happens when people stop trusting those promises? And I want to add a point to that. I saw this point a while back that I thought was fascinating. Yes, we are overleveraged. Yes, we are overindebted. The United States has an imperial outlook to the world as well. And I found this to be a fascinating notion. Where we maintain military bases around the world, those countries tend to be the largest buyers of our national debt. Is it protection money? Not saying it is, just think about it. Is it protection money? If you're South Korea or Japan or any of these nations that are huge buyers of our debt, they are inadvertent, they're overtly or inovertly, excuse my my grammar. They are they are, you know, funding our national security mechanism in some respect. Now, is it is uh a conscious decision? I don't know. I don't know. I'm not gonna go that far. But we are in the same boat. So the Potosi scandal teaches us three critical lessons every investor needs to understand when you think about timeless patterns, where we are on the cycle, and what's happening. First, trust is fragile. I've hit that point many times. I think you got it. It takes decades to build, it can be destroyed overnight. Whether it's a currency, a company, or a credit rating, trust is the foundation everything else is built upon. Second, leverage amplifies everything. Spain's imperial overreach meant that when the silver fraud was exposed, the damage was catastrophic. If they'd been living within their means, they probably would have survived the scandal. Third, when trust breaks, it spreads. The Potosi scandal didn't just hurt those specific coins, it damaged confidence in all Spanish currency. Contagion is real. Does that sound familiar? Because it should. Think about 2008, when subprime mortgage fraud didn't just hurt housing, it crashed the entire financial system. Or consider what's happening right now with various financial institutions, rampant debasement of fiat currency, massive overleverage by the US government. What are bond yields doing, right? Like what are they doing in response to this? When trust starts to crack, it does not stay contained. So, what can modern investors do with this knowledge? First, understand that all financial systems are built on trust. And when it's threatened, be ready to move quickly. Second, in my opinion, diversify beyond paper assets. Real estate, precious metals, operating businesses, things with intrinsic value, independent of government promises. And of those things, real estate is still probably, I mean, I hate to say this because I'm a real estate guy, still probably the most exposed to the government, right? It's uh controlled by regulation, it's controlled by local policies, it's highly rate dependent. So there are some negatives to real estate versus the other two, but it is still a very strong inflation hedge and still a place that holds value very well over time on a gold basis, not a fiat basis. Third, watch for signs of imperial overreach in your own country. When the government starts borrowing heavily against future revenues to fund present ambitions, history suggests that it really ends well. The question always is doesn't end well? Sure, we get it. How long till it doesn't end well? The answer probably longer than most of us are going to be alive, to be honest with you. But we can try to do something about it today, right? Vote accordingly, try to do the right thing. As real estate investors, this is why hard assets matter. When currency becomes questionable, which our currency is questionable in some respects, people flee to things they can touch, feel, and control. Land does not lie, buildings do not debase themselves, real assets provide the stability, the paper promises just don't deliver over time. The mount the mountain of Potosi still stands in Blivia today. You can visit the mines yourself. You can see where millions died extracting the silver that built and destroyed an empire. But the real lesson here isn't in those tunnels. It is an understanding that financial systems, no matter how powerful they seem, are only as strong as the trust that supports them. And when that trust is combined with massive leverage against future promises, the collapse can be swift and total. The Spanish learned this the hard way. They built an empire on credit backed by silver and then watched both the silver and credit disappear when fraud was exposed. The question is, are we making the same mistake today? I think so. That is today's episode of the Timeless Investor Show. If this story resonated with you, please subscribe, share it with someone who needs to understand how the financial system really works. Like it, leave us a comment, help the show to grow. And until next time, think well, act wisely, build something timeless. Thank you for being here.