September 27, 2025 • 19 mins
What happens when the world's most trusted currency becomes worthless overnight? Not through war or conquest, but fraud so massive it brings down an empire.
This is the story of the Potosí mines scandal - how Spanish officials debased silver coins, stole billions, and destroyed the foundation of global finance in the 1600s. The Spanish Empire went from controlling 25% of the world to defaulting repeatedly, all because trust in their currency collapsed.
But this isn't just ancient history. The patterns are repeating today with massive government debt, currency concerns, and recent financial scandals like Tricolor Holdings.
Key Topics Covered:
- The Potosí silver mines and Spanish imperial overreach
- How the fraud was committed and eventually detected
- Spain's addiction to borrowing against future silver shipments
- Why trust is the foundation of all financial systems
- Modern parallels to current monetary policy
- Why hard assets matter in uncertain times
Resources Mentioned:
- The Bitcoin Standard by Saifedean Ammous
- The Creature from Jekyll Island by G. Edward Griffin
- The Crisis of 33 AD (previous episode)
Connect with Arie:
- Newsletter: The Timeless Investor on Substack
- Website: www.lombardequities.com
- YouTube: https://www.youtube.com/@TheTimelessInvestor
- LinkedIn: https://www.linkedin.com/in/arievangemeren/
- Investment Opportunities: https://timelessinvestor.short.gy/9ppnK5
For more historical lessons on building timeless wealth, subscribe to The Timeless Investor Show.
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Follow the Timeless Investor Show if you want to hear more of our podcast content.
Get your own copy of Timeless Wealth: Real Estate Through the Ages.
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Think Well. Act Wisely. Build Something Timeless.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_00 (00:00):
What if I told you the most trusted currency in the
(00:02):
world once became nearlyworthless overnight?
Not because of war, not becauseof conquest, but because of
fraud so massive that it helpedin 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 investmentfund, and I am your host today
for the Timeless Investor Show,where we explore timeless
(00:26):
lessons from history's greatestfinancial rises and falls, the
great operators and builders ofthe past, and epic investors of
today.
Today's story takes us to amountain in Bolivia that
produced more wealth thananywhere else on Earth.
But that wealth came with acurse that would ultimately
destroy the Spanish Empire fromwithin.
(00:47):
This is the story of the PotosiMines scandal.
And is at its heart a storyabout why trust is at the center
of finance, and why trust in thehard metal currency world of the
past is infinitely moreimportant today in our financial
ecosystem, and why economiesthat operate at the speed of
(01:08):
trust can be derailed brutallyand swiftly by anything.
This is also one of my favoriteeras of history.
There's something about thestories of the Spanish in the
New World, Hernan Cortez'sencounter with this
fundamentally different and sortof alien culture to this very
staunch Catholic warrior cultureof Spain, these epic tales of
(01:31):
him entering the Aztec templesand thinking he'd found himself
in a den of devil worshippers.
And yes, I know, the Europeanarrival to the New World was an
unmitigated disaster for thepeople already there.
But it is nonetheless aninteresting period.
In fact, somebody shouldprobably write something about
how the Aztec Empire essentiallydissolved from within,
(01:51):
surrounded by rival nations thatactually eagerly joined the
Spanish in tearing down theirown oppressors.
Anyways, I digress.
I love the era of history.
I've been reading it since I wasa kid.
I love it.
But our story here takes ussouth into the land of the
Incas.
Potosi was known as the mountainthat ate men.
(02:11):
So picture this.
It's 1545, high in the BolivianAndes.
Spanish conquistadors discoversomething that will change the
world forever (02:18):
the Cerro Rico, the rich hill of Potosi.
And this wasn't just any silvermine.
At its peak, Potosi producednearly 60% of the world's
silver.
To put that in perspective, thissingle mountain pumped out more
precious metal than entirecontinents.
The Spanish referred to it asthe mountain that eats men, and
(02:40):
for good reason, millions ofindigenous workers died in its
tunnels.
But for the Spanish crown, itwas the foundation of global
empire.
Spanish silver coins minted atPotosi became the world's
reserve currency.
They were trusted in London,Istanbul, Manila, anywhere
merchants did business.
(03:01):
These coins financed Spanisharmies, built their fleets, and
sustained their empire acrossfour continents.
But here's what you have torealize: the system, even though
it was a hard metal currencysystem, was still built on
trust.
Because here's what made thePotosi scandal so catastrophic.
Spain had become addicted tosilver.
(03:21):
By the early 1600s, the Spanishcrown wasn't just spending the
silver they had.
They were borrowing againstsilver that hadn't even been
mined yet.
Think about that.
Spanish banks and Italianfinanciers were lending money
based on the promise of futuretreasure fleets, ships that
hadn't sailed, silver that wasstill in the ground.
(03:42):
And meanwhile, you had thesefrustrating English pirates that
were sabotaging the network, butnonetheless, this was what it
was built upon.
The entire imperial system, thearmies in the Netherlands, the
fleets in the Pacific, thebureaucracy across four
different continents, wasfinanced by credit secured by
future Potosi shipments, othermines as well, but Potosi,
(04:03):
remember, being the mother load.
Spain had, at this point,imperial overreach in the
extreme.
They were fighting warseverywhere against the Dutch,
against the English, againstOttoman expansion, all of it
funded by borrowing.
And this worked as long as twothings remained true.
The silver kept flowing, andpeople trusted that Spanish
(04:24):
silver was worth what it claimedto be.
So when the Potosi fraud wasexposed, both assumptions
collapsed simultaneously.
Brutal.
Here's what happened.
By the early 1600s, somethingsinister was happening inside
the Potosi Mint.
Local officials had discoveredthe ultimate get-rich quick
(04:44):
scheme.
They realized they could quietlyreduce the silver content of the
coins without changing theirweight or their appearance.
Debase by 10%, pocket thedifference.
Debase by 20%, make even more.
And this, interestingly enough,many examples in history of
governments inevitably debasingtheir own currency.
Spain didn't do it, guys.
(05:05):
They didn't do it.
This was not the Spanish crowndebasing currency to fund wars.
This was theft, pure and simple.
A few corrupt officials stealingfrom the entire global economy.
Okay?
And the reason the story isinteresting, we I love to talk
on this show about imperialoverreach, debasement, real
assets, the value of real assetsand fiat economies, whatever.
(05:30):
This is an interesting storybecause it really highlights the
trust mechanism.
But let me explain how theseguys did it.
They take the required amount ofpure silver, but they would mix
in cheaper metals.
The coins looked identical.
They felt the same weight, theybore the official royal stamps,
but they were lies.
For years, millions of thesedebased coins flowed out of
(05:52):
Potosi and into the globaleconomy.
Spanish treasure fleets carriedthem to Europe.
Merchants accepted them at facevalue.
The fraud was basicallyinvisible.
By some estimates, coins fromcertain years contained 20 to
30% less silver than they weresupposed to.
That is not an accounting error.
That is massive.
And for quite a while, nobodynoticed.
(06:13):
But here's the thing aboutfraud, Ponzi schemes, being a
liar.
It always gets exposed.
Always.
And the first cracks appeared inthe trading houses of Sevilla
and Amsterdam.
Merchants started noticingsomething was off.
The Potosi coins felt different.
They wore down faster than theyshould.
(06:34):
When you tap them, they didn'tring 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 tocoins from other mints, like
Mexico City.
Slowly, suspicions grew.
And then came the acid test.
Literally, merchants began usingacid to test silver purity, and
the results were devastating.
(06:55):
Potosi coins consistently showedlower silver content.
But the smoking gun, when coinswere melted down for bullion, a
common practice, the truth wasundeniable.
There was simply less silverthan there should be.
Word spread like wildfire frommerchant to merchant, port to
port, trading house to tradinghouse.
Potosi silver was compromised.
(07:17):
By the way, it's not just Potosisilver, it is the Spanish
crown's silver.
Important.
Confidence cracked.
And once it cracks, it is veryhard to repair.
Just ask anybody who's ever liedto anybody, do they believe you
as easily the next time?
No.
Now magnify that a thousandfold,right?
(07:38):
A thousandfold.
The Spanish crown has beenperpetrating some sort of fraud
on the entire economy, and nowthey're on to it.
So imagine you're a Spanishofficial in Madrid watching this
unfold.
You've got armies fighting inmultiple theaters, you've got
fleets to maintain across thePacific, you've got a massive
bureaucracy to fund.
You have a global church todefend, and all of it depends on
(08:01):
credit backed by silver thatpeople are now refusing to
accept.
Remember, they were not justliving off silver production.
They'd already spent next year'ssilver.
And the year after that, Italianbankers had been happy to lend
against future shipments becauseSpanish silver was the most
trusted currency in the world.
But when that trust evaporated,so did the credit.
(08:22):
And overnight, Spain went frombeing the richest empire in
history to being unable to payits bills.
The army in the Netherlands,unpaid.
The treasure fleets, no money tooutfit them.
The colonial administrationcollapsing.
This is what happens when anempire leverages itself to the
maximum based on the assumptionthat the good times will last
forever.
And unfortunately for theSpanish, it's not totally their
(08:44):
fault, right?
There was fraud.
But it's sort of their fault.
And by the way, the armies inthe Netherlands being unpaid, we
hit on that in the sack ofAntwerp.
Those armies were unpaid.
There's some parallels there.
The army sacking Antwerp,destroying a center of finance
in the Low Countries.
Why?
Unpaid.
(09:04):
Was it related to this?
I think so.
Think about what happened next.
If you were a merchant in 1640and you heard that Potosi coins
might be fake, what would youdo?
You'd stop accepting them oryou'd demand a discount.
Better yet, you'd insist oncoins from trusted mints or pure
bullion you can verify yourself.
And this is exactly whathappened.
Potosi coins began trading at adiscount.
(09:25):
Then other Spanish coins becamesuspect too.
If officials could debase coinsat Potosi, who's to say it
wasn't happening somewhere else?
Merchants started rejectingSpanish currency entirely in
favor of other options.
The most trusted currency in theworld was becoming worthless
paper, or in this case,worthless metal.
But remember, the entire systemwas built on borrowing against
(09:48):
future shipments.
And when that silver lostcredibility, it dried up
instantly.
Spain defaulted, not once, butrepeatedly.
After all, what banker in theirright mind would lend to a
country that had defaulted fivetimes in this short period of
(10:09):
time?
So, when the scandal finallyexploded into public view in the
1640s, the Spanish crown washorrified.
They launched investigations,arrested officials, and executed
the perpetrators.
An interesting side note, wetalk a lot today about
regulatory capture, right?
And regulatory capture can meanmany things.
You know, the Moody's officialsgiving bad ratings, whatever.
(10:33):
We understand the notion ofregulatory capture.
The first investigators sent bythe Spanish crown were actually
paid off by the fraudsters.
Legit regulatory capture goingon here, guys.
But eventually the crown willhave its justice.
And when they executed them,they didn't just execute them,
they did what's known as drawnand quartering.
The perpetrators were drawn andquartered.
(10:54):
One of the most brutal forms ofexecution imaginable.
The crown had to send a message,but it was too late.
Trust, once broken, is nearlyimpossible to restore.
And when you've built yourempire on credit, losing trust
means losing everything.
Spain still had silver mines,they still had treasure fleets,
but they no longer had trust.
(11:14):
And without trust, even therichest empire in history was
turned into just another failedstate.
And their enemies, England,France, the Dutch Republic,
seized the opportunity.
Spain's decline was swift andirreversible.
It is very difficult to pick thepieces up after something like
this.
Okay, what are the timelesslessons here, right?
(11:35):
Because we we tell thesehistoric stories, but there's a
reason we talk about thesestories.
They are history rhymes, right?
And I've said it and I'll keepsaying it, and it's the thematic
of the timeless investor, and itinforms the way we think about
investing today in the UnitedStates, in real assets.
History rhymes because peopledon't change.
And so this story is not reallyjust about Spanish history, it
(11:56):
is about every financial systemthat's ever been created.
Currency, whether it's gold,paper dollars, or digital
assets, is fundamentally abouttrust.
And when that trust breaks, thesystem collapses always.
Okay.
Now, we have a lot of differentviewers of this show.
So the folks that are hard, likehard metal enthusiasts will say,
well, that's, you know, that'snot true.
(12:18):
Well, it is true because if thecoins themselves are debased,
they lose trust, right?
So there is a trust element tolike you're trusting that the
gold is worth something,especially if it's an actual
currency.
I understand today's a littledifferent.
The Bitcoin maximalists wholisten to this show will say,
Ah, but Bitcoin is a trustlessasset.
Sure, I get it.
(12:38):
I've read the Bitcoin standard,I've read The Creature from
Jekyll Island, I've gone deepinto this topic.
Bitcoin relies on trust too.
And I'm gonna get flack.
I don't care, I'm just gonna sayit.
You trust that everybody elsewill continue to ascribe value
to Bitcoin.
Okay, so that it is still atrust-based system.
You are just trusting insomething, you are trusting in
the communal belief that Bitcoinhas value.
(13:00):
Okay, that's that's I've saidit.
I would love to hear dissentingopinions on all points in this.
Hit me with it, it's totallyfine.
But the point is we operate in asystem of trust.
Trust in the law, trust inexchange, trust in the good,
like, well, the law, right?
Really at the end of the day,the law.
The law will enforce contractsand ensure things happen.
(13:23):
But when the trust breaks, thesystem collapses always.
And there's a deeper lesson hereabout leverage and imperial
overreach as well.
Spain didn't just fail becauseof the fraud, they failed
because they borrowed againstthe future to fund present
ambitions.
They borrowed against the futureat a massive scale to pursue
imperial overreach, which is aclassic thematic in history.
(13:46):
It happens all the time.
That should sound familiar.
Think about our modern world.
We live in a system of pure fiatcurrency.
Our money has no intrinsic valueexcept the government's promise
that it's worth something andsociety's collective belief that
it is worth something.
And just like Spain, we arecurrently borrowing against
future tax revenues to fundpresent spending.
(14:07):
National debt is growing fasterthan the economy, and our
deficits assume tomorrow will bebetter than today.
What happens when people stoptrusting those promises?
And I want to add a point tothat.
I saw this point a while backthat I thought was fascinating.
Yes, we are overleveraged.
Yes, we are overindebted.
The United States has animperial outlook to the world as
well.
And I found this to be afascinating notion.
(14:29):
Where we maintain military basesaround the world, those
countries tend to be the largestbuyers of our national debt.
Is it protection money?
Not saying it is, just thinkabout it.
Is it protection money?
If you're South Korea or Japanor any of these nations that are
huge buyers of our debt, theyare inadvertent, they're overtly
or inovertly, excuse my mygrammar.
(14:52):
They are they are, you know,funding our national security
mechanism in some respect.
Now, is it is uh a consciousdecision?
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 usthree critical lessons every
investor needs to understandwhen you think about timeless
(15:15):
patterns, where we are on thecycle, 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, itcan be destroyed overnight.
Whether it's a currency, acompany, or a credit rating,
trust is the foundationeverything else is built upon.
Second, leverage amplifieseverything.
Spain's imperial overreach meantthat when the silver fraud was
(15:35):
exposed, the damage wascatastrophic.
If they'd been living withintheir means, they probably would
have survived the scandal.
Third, when trust breaks, itspreads.
The Potosi scandal didn't justhurt those specific coins, it
damaged confidence in allSpanish currency.
Contagion is real.
Does that sound familiar?
Because it should.
(15:56):
Think about 2008, when subprimemortgage fraud didn't just hurt
housing, it crashed the entirefinancial system.
Or consider what's happeningright now with various financial
institutions, rampant debasementof fiat currency, massive
overleverage by the USgovernment.
What are bond yields doing,right?
Like what are they doing inresponse to this?
(16:16):
When trust starts to crack, itdoes not stay contained.
So, what can modern investors dowith this knowledge?
First, understand that allfinancial systems are built on
trust.
And when it's threatened, beready to move quickly.
Second, in my opinion, diversifybeyond paper assets.
Real estate, precious metals,operating businesses, things
with intrinsic value,independent of government
(16:36):
promises.
And of those things, real estateis still probably, I mean, I
hate to say this because I'm areal estate guy, still probably
the most exposed to thegovernment, right?
It's uh controlled byregulation, it's controlled by
local policies, it's highly ratedependent.
So there are some negatives toreal estate versus the other
two, but it is still a verystrong inflation hedge and still
(16:59):
a place that holds value verywell over time on a gold basis,
not a fiat basis.
Third, watch for signs ofimperial overreach in your own
country.
When the government startsborrowing heavily against future
revenues to fund presentambitions, history suggests that
it really ends well.
The question always is doesn'tend well?
Sure, we get it.
(17:20):
How long till it doesn't endwell?
The answer probably longer thanmost of us are going to be
alive, to be honest with you.
But we can try to do somethingabout it today, right?
Vote accordingly, try to do theright thing.
As real estate investors, thisis why hard assets matter.
When currency becomesquestionable, which our currency
is questionable in somerespects, people flee to things
(17:42):
they can touch, feel, andcontrol.
Land does not lie, buildings donot debase themselves, real
assets provide the stability,the paper promises just don't
deliver over time.
The mount the mountain of Potosistill stands in Blivia today.
You can visit the minesyourself.
You can see where millions diedextracting the silver that built
(18:03):
and destroyed an empire.
But the real lesson here isn'tin those tunnels.
It is an understanding thatfinancial systems, no matter how
powerful they seem, are only asstrong as the trust that
supports them.
And when that trust is combinedwith massive leverage against
future promises, the collapsecan be swift and total.
(18:24):
The Spanish learned this thehard way.
They built an empire on creditbacked by silver and then
watched both the silver andcredit disappear when fraud was
exposed.
The question is, are we makingthe same mistake today?
I think so.
That is today's episode of theTimeless Investor Show.
If this story resonated withyou, please subscribe, share it
(18:46):
with someone who needs tounderstand 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.
What if I told you the most trusted currency in the
(00:02):
world once became nearlyworthless overnight?
Not because of war, not becauseof conquest, but because of
fraud so massive that it helpedin 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 investmentfund, and I am your host today
for the Timeless Investor Show,where we explore timeless
(00:26):
lessons from history's greatestfinancial rises and falls, the
great operators and builders ofthe past, and epic investors of
today.
Today's story takes us to amountain in Bolivia that
produced more wealth thananywhere else on Earth.
But that wealth came with acurse that would ultimately
destroy the Spanish Empire fromwithin.
(00:47):
This is the story of the PotosiMines scandal.
And is at its heart a storyabout why trust is at the center
of finance, and why trust in thehard metal currency world of the
past is infinitely moreimportant today in our financial
ecosystem, and why economiesthat operate at the speed of
(01:08):
trust can be derailed brutallyand swiftly by anything.
This is also one of my favoriteeras of history.
There's something about thestories of the Spanish in the
New World, Hernan Cortez'sencounter with this
fundamentally different and sortof alien culture to this very
staunch Catholic warrior cultureof Spain, these epic tales of
(01:31):
him entering the Aztec templesand thinking he'd found himself
in a den of devil worshippers.
And yes, I know, the Europeanarrival to the New World was an
unmitigated disaster for thepeople already there.
But it is nonetheless aninteresting period.
In fact, somebody shouldprobably write something about
how the Aztec Empire essentiallydissolved from within,
(01:51):
surrounded by rival nations thatactually eagerly joined the
Spanish in tearing down theirown oppressors.
Anyways, I digress.
I love the era of history.
I've been reading it since I wasa kid.
I love it.
But our story here takes ussouth into the land of the
Incas.
Potosi was known as the mountainthat ate men.
(02:11):
So picture this.
It's 1545, high in the BolivianAndes.
Spanish conquistadors discoversomething that will change the
world forever (02:18):
the Cerro Rico, the rich hill of Potosi.
And this wasn't just any silvermine.
At its peak, Potosi producednearly 60% of the world's
silver.
To put that in perspective, thissingle mountain pumped out more
precious metal than entirecontinents.
The Spanish referred to it asthe mountain that eats men, and
(02:40):
for good reason, millions ofindigenous workers died in its
tunnels.
But for the Spanish crown, itwas the foundation of global
empire.
Spanish silver coins minted atPotosi became the world's
reserve currency.
They were trusted in London,Istanbul, Manila, anywhere
merchants did business.
(03:01):
These coins financed Spanisharmies, built their fleets, and
sustained their empire acrossfour continents.
But here's what you have torealize: the system, even though
it was a hard metal currencysystem, was still built on
trust.
Because here's what made thePotosi scandal so catastrophic.
Spain had become addicted tosilver.
(03:21):
By the early 1600s, the Spanishcrown wasn't just spending the
silver they had.
They were borrowing againstsilver that hadn't even been
mined yet.
Think about that.
Spanish banks and Italianfinanciers were lending money
based on the promise of futuretreasure fleets, ships that
hadn't sailed, silver that wasstill in the ground.
(03:42):
And meanwhile, you had thesefrustrating English pirates that
were sabotaging the network, butnonetheless, this was what it
was built upon.
The entire imperial system, thearmies in the Netherlands, the
fleets in the Pacific, thebureaucracy across four
different continents, wasfinanced by credit secured by
future Potosi shipments, othermines as well, but Potosi,
(04:03):
remember, being the mother load.
Spain had, at this point,imperial overreach in the
extreme.
They were fighting warseverywhere against the Dutch,
against the English, againstOttoman expansion, all of it
funded by borrowing.
And this worked as long as twothings remained true.
The silver kept flowing, andpeople trusted that Spanish
(04:24):
silver was worth what it claimedto be.
So when the Potosi fraud wasexposed, both assumptions
collapsed simultaneously.
Brutal.
Here's what happened.
By the early 1600s, somethingsinister was happening inside
the Potosi Mint.
Local officials had discoveredthe ultimate get-rich quick
(04:44):
scheme.
They realized they could quietlyreduce the silver content of the
coins without changing theirweight or their appearance.
Debase by 10%, pocket thedifference.
Debase by 20%, make even more.
And this, interestingly enough,many examples in history of
governments inevitably debasingtheir own currency.
Spain didn't do it, guys.
(05:05):
They didn't do it.
This was not the Spanish crowndebasing currency to fund wars.
This was theft, pure and simple.
A few corrupt officials stealingfrom the entire global economy.
Okay?
And the reason the story isinteresting, we I love to talk
on this show about imperialoverreach, debasement, real
assets, the value of real assetsand fiat economies, whatever.
(05:30):
This is an interesting storybecause it really highlights the
trust mechanism.
But let me explain how theseguys did it.
They take the required amount ofpure silver, but they would mix
in cheaper metals.
The coins looked identical.
They felt the same weight, theybore the official royal stamps,
but they were lies.
For years, millions of thesedebased coins flowed out of
(05:52):
Potosi and into the globaleconomy.
Spanish treasure fleets carriedthem to Europe.
Merchants accepted them at facevalue.
The fraud was basicallyinvisible.
By some estimates, coins fromcertain years contained 20 to
30% less silver than they weresupposed to.
That is not an accounting error.
That is massive.
And for quite a while, nobodynoticed.
(06:13):
But here's the thing aboutfraud, Ponzi schemes, being a
liar.
It always gets exposed.
Always.
And the first cracks appeared inthe trading houses of Sevilla
and Amsterdam.
Merchants started noticingsomething was off.
The Potosi coins felt different.
They wore down faster than theyshould.
(06:34):
When you tap them, they didn'tring 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 tocoins from other mints, like
Mexico City.
Slowly, suspicions grew.
And then came the acid test.
Literally, merchants began usingacid to test silver purity, and
the results were devastating.
(06:55):
Potosi coins consistently showedlower silver content.
But the smoking gun, when coinswere melted down for bullion, a
common practice, the truth wasundeniable.
There was simply less silverthan there should be.
Word spread like wildfire frommerchant to merchant, port to
port, trading house to tradinghouse.
Potosi silver was compromised.
(07:17):
By the way, it's not just Potosisilver, it is the Spanish
crown's silver.
Important.
Confidence cracked.
And once it cracks, it is veryhard to repair.
Just ask anybody who's ever liedto anybody, do they believe you
as easily the next time?
No.
Now magnify that a thousandfold,right?
(07:38):
A thousandfold.
The Spanish crown has beenperpetrating some sort of fraud
on the entire economy, and nowthey're on to it.
So imagine you're a Spanishofficial in Madrid watching this
unfold.
You've got armies fighting inmultiple theaters, you've got
fleets to maintain across thePacific, you've got a massive
bureaucracy to fund.
You have a global church todefend, and all of it depends on
(08:01):
credit backed by silver thatpeople are now refusing to
accept.
Remember, they were not justliving off silver production.
They'd already spent next year'ssilver.
And the year after that, Italianbankers had been happy to lend
against future shipments becauseSpanish silver was the most
trusted currency in the world.
But when that trust evaporated,so did the credit.
(08:22):
And overnight, Spain went frombeing the richest empire in
history to being unable to payits bills.
The army in the Netherlands,unpaid.
The treasure fleets, no money tooutfit them.
The colonial administrationcollapsing.
This is what happens when anempire leverages itself to the
maximum based on the assumptionthat the good times will last
forever.
And unfortunately for theSpanish, it's not totally their
(08:44):
fault, right?
There was fraud.
But it's sort of their fault.
And by the way, the armies inthe Netherlands being unpaid, we
hit on that in the sack ofAntwerp.
Those armies were unpaid.
There's some parallels there.
The army sacking Antwerp,destroying a center of finance
in the Low Countries.
Why?
Unpaid.
(09:04):
Was it related to this?
I think so.
Think about what happened next.
If you were a merchant in 1640and you heard that Potosi coins
might be fake, what would youdo?
You'd stop accepting them oryou'd demand a discount.
Better yet, you'd insist oncoins from trusted mints or pure
bullion you can verify yourself.
And this is exactly whathappened.
Potosi coins began trading at adiscount.
(09:25):
Then other Spanish coins becamesuspect too.
If officials could debase coinsat Potosi, who's to say it
wasn't happening somewhere else?
Merchants started rejectingSpanish currency entirely in
favor of other options.
The most trusted currency in theworld was becoming worthless
paper, or in this case,worthless metal.
But remember, the entire systemwas built on borrowing against
(09:48):
future shipments.
And when that silver lostcredibility, it dried up
instantly.
Spain defaulted, not once, butrepeatedly.
After all, what banker in theirright mind would lend to a
country that had defaulted fivetimes in this short period of
(10:09):
time?
So, when the scandal finallyexploded into public view in the
1640s, the Spanish crown washorrified.
They launched investigations,arrested officials, and executed
the perpetrators.
An interesting side note, wetalk a lot today about
regulatory capture, right?
And regulatory capture can meanmany things.
You know, the Moody's officialsgiving bad ratings, whatever.
(10:33):
We understand the notion ofregulatory capture.
The first investigators sent bythe Spanish crown were actually
paid off by the fraudsters.
Legit regulatory capture goingon here, guys.
But eventually the crown willhave its justice.
And when they executed them,they didn't just execute them,
they did what's known as drawnand quartering.
The perpetrators were drawn andquartered.
(10:54):
One of the most brutal forms ofexecution imaginable.
The crown had to send a message,but it was too late.
Trust, once broken, is nearlyimpossible to restore.
And when you've built yourempire on credit, losing trust
means losing everything.
Spain still had silver mines,they still had treasure fleets,
but they no longer had trust.
(11:14):
And without trust, even therichest empire in history was
turned into just another failedstate.
And their enemies, England,France, the Dutch Republic,
seized the opportunity.
Spain's decline was swift andirreversible.
It is very difficult to pick thepieces up after something like
this.
Okay, what are the timelesslessons here, right?
(11:35):
Because we we tell thesehistoric stories, but there's a
reason we talk about thesestories.
They are history rhymes, right?
And I've said it and I'll keepsaying it, and it's the thematic
of the timeless investor, and itinforms the way we think about
investing today in the UnitedStates, in real assets.
History rhymes because peopledon't change.
And so this story is not reallyjust about Spanish history, it
(11:56):
is about every financial systemthat's ever been created.
Currency, whether it's gold,paper dollars, or digital
assets, is fundamentally abouttrust.
And when that trust breaks, thesystem collapses always.
Okay.
Now, we have a lot of differentviewers of this show.
So the folks that are hard, likehard metal enthusiasts will say,
well, that's, you know, that'snot true.
(12:18):
Well, it is true because if thecoins themselves are debased,
they lose trust, right?
So there is a trust element tolike you're trusting that the
gold is worth something,especially if it's an actual
currency.
I understand today's a littledifferent.
The Bitcoin maximalists wholisten to this show will say,
Ah, but Bitcoin is a trustlessasset.
Sure, I get it.
(12:38):
I've read the Bitcoin standard,I've read The Creature from
Jekyll Island, I've gone deepinto this topic.
Bitcoin relies on trust too.
And I'm gonna get flack.
I don't care, I'm just gonna sayit.
You trust that everybody elsewill continue to ascribe value
to Bitcoin.
Okay, so that it is still atrust-based system.
You are just trusting insomething, you are trusting in
the communal belief that Bitcoinhas value.
(13:00):
Okay, that's that's I've saidit.
I would love to hear dissentingopinions on all points in this.
Hit me with it, it's totallyfine.
But the point is we operate in asystem of trust.
Trust in the law, trust inexchange, trust in the good,
like, well, the law, right?
Really at the end of the day,the law.
The law will enforce contractsand ensure things happen.
(13:23):
But when the trust breaks, thesystem collapses always.
And there's a deeper lesson hereabout leverage and imperial
overreach as well.
Spain didn't just fail becauseof the fraud, they failed
because they borrowed againstthe future to fund present
ambitions.
They borrowed against the futureat a massive scale to pursue
imperial overreach, which is aclassic thematic in history.
(13:46):
It happens all the time.
That should sound familiar.
Think about our modern world.
We live in a system of pure fiatcurrency.
Our money has no intrinsic valueexcept the government's promise
that it's worth something andsociety's collective belief that
it is worth something.
And just like Spain, we arecurrently borrowing against
future tax revenues to fundpresent spending.
(14:07):
National debt is growing fasterthan the economy, and our
deficits assume tomorrow will bebetter than today.
What happens when people stoptrusting those promises?
And I want to add a point tothat.
I saw this point a while backthat I thought was fascinating.
Yes, we are overleveraged.
Yes, we are overindebted.
The United States has animperial outlook to the world as
well.
And I found this to be afascinating notion.
(14:29):
Where we maintain military basesaround the world, those
countries tend to be the largestbuyers of our national debt.
Is it protection money?
Not saying it is, just thinkabout it.
Is it protection money?
If you're South Korea or Japanor any of these nations that are
huge buyers of our debt, theyare inadvertent, they're overtly
or inovertly, excuse my mygrammar.
(14:52):
They are they are, you know,funding our national security
mechanism in some respect.
Now, is it is uh a consciousdecision?
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 usthree critical lessons every
investor needs to understandwhen you think about timeless
(15:15):
patterns, where we are on thecycle, 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, itcan be destroyed overnight.
Whether it's a currency, acompany, or a credit rating,
trust is the foundationeverything else is built upon.
Second, leverage amplifieseverything.
Spain's imperial overreach meantthat when the silver fraud was
(15:35):
exposed, the damage wascatastrophic.
If they'd been living withintheir means, they probably would
have survived the scandal.
Third, when trust breaks, itspreads.
The Potosi scandal didn't justhurt those specific coins, it
damaged confidence in allSpanish currency.
Contagion is real.
Does that sound familiar?
Because it should.
(15:56):
Think about 2008, when subprimemortgage fraud didn't just hurt
housing, it crashed the entirefinancial system.
Or consider what's happeningright now with various financial
institutions, rampant debasementof fiat currency, massive
overleverage by the USgovernment.
What are bond yields doing,right?
Like what are they doing inresponse to this?
(16:16):
When trust starts to crack, itdoes not stay contained.
So, what can modern investors dowith this knowledge?
First, understand that allfinancial systems are built on
trust.
And when it's threatened, beready to move quickly.
Second, in my opinion, diversifybeyond paper assets.
Real estate, precious metals,operating businesses, things
with intrinsic value,independent of government
(16:36):
promises.
And of those things, real estateis still probably, I mean, I
hate to say this because I'm areal estate guy, still probably
the most exposed to thegovernment, right?
It's uh controlled byregulation, it's controlled by
local policies, it's highly ratedependent.
So there are some negatives toreal estate versus the other
two, but it is still a verystrong inflation hedge and still
(16:59):
a place that holds value verywell over time on a gold basis,
not a fiat basis.
Third, watch for signs ofimperial overreach in your own
country.
When the government startsborrowing heavily against future
revenues to fund presentambitions, history suggests that
it really ends well.
The question always is doesn'tend well?
Sure, we get it.
(17:20):
How long till it doesn't endwell?
The answer probably longer thanmost of us are going to be
alive, to be honest with you.
But we can try to do somethingabout it today, right?
Vote accordingly, try to do theright thing.
As real estate investors, thisis why hard assets matter.
When currency becomesquestionable, which our currency
is questionable in somerespects, people flee to things
(17:42):
they can touch, feel, andcontrol.
Land does not lie, buildings donot debase themselves, real
assets provide the stability,the paper promises just don't
deliver over time.
The mount the mountain of Potosistill stands in Blivia today.
You can visit the minesyourself.
You can see where millions diedextracting the silver that built
(18:03):
and destroyed an empire.
But the real lesson here isn'tin those tunnels.
It is an understanding thatfinancial systems, no matter how
powerful they seem, are only asstrong as the trust that
supports them.
And when that trust is combinedwith massive leverage against
future promises, the collapsecan be swift and total.
(18:24):
The Spanish learned this thehard way.
They built an empire on creditbacked by silver and then
watched both the silver andcredit disappear when fraud was
exposed.
The question is, are we makingthe same mistake today?
I think so.
That is today's episode of theTimeless Investor Show.
If this story resonated withyou, please subscribe, share it
(18:46):
with someone who needs tounderstand 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.
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