In history class we always learn about how Spain is the most powerful empire in the world in the 1500's. They have mountains of gold, own a continent and a half, and conquer 2 great empires as well as countless tribes. How come they just seem to fade out of importance after that until the Spanish-American war? How come they fall so far behind the other European powers and what were they even doing during, say, the world wars?
EDIT: I just realized this is in the FAQ, sorry! I'll delete it unless there's interest in this again.
IIRC the FAQ covers mostly the period up to the Spanish War of Succession, so it may be worth discussing this again here. There are many theories as to why Spain's Golden Age in the 16th century became Spain's Age of Decline in the 17th century.
Most of the theories hover around the idea of "imperial over-reach", financial bankruptcy, and the failure to form a modern nation-state system. Of course, all three are related.
An example is Spain's failure to grow a strong home-made navy, forcing them to rely on Genoa both for its navy and its financial backing. In the short term this was needed to secure the Mediterranean, in the long term this led to dependence and ongoing economic weakness in the Aragonese coast.
Similarly, the army of Flanders meant dependence on many parties to provide logistics and funding, thus opening many weaknesses in the empire from Italy to the Rhenish lands to Burgundian domains, and of course in the North Sea. Not to mention the cost in terms of economic distress and population distress back home.
Its decision to attempt an invasion of Elizabethan England was a reaction both to the situation in the Low Countries and abroad in the colonies as it was determined it was cheaper to invade England and mitigate the threat there than to build and maintain forts and patrols all over the colonies.
Moving forward a bit, the War of Spanish Succession led to Bourbon rule in Spain. This has three important consequences. First is that Spain became Bourbon France's junior partner in many political ventures, even though there were exceptions. Second is loss of territories in the Mediterranean. Third is the attempt to modernize along Enlightenment ideas. While the third was a sorely needed reform, over time it led to independence movements in the colonies.
Of course, it is easy to argue that the first point had the strongest consequence in homeland Spain. Its position and inter-dependence with the late Boubons led to weaknesses; Napoleon ended up subjugating it following a period of alliance, leading to an outburst of Republican and Liberal ideals which eventually triggered the Carlist Wars both at home and in the colonies, and then the Spanish Civil War.