Spain had ceased to be a major power around the 17th-18th centuries. By the late 19th century it was safely described as a second rate European power.

By the 1820s it had lost most of its American colonial empire, save Cuba and Puerto Rico. Even as late as the early 20th century, agriculture in some regions failed to keep up with technical and scientific advances which had revolutionized other parts of Europe. Industrialization was limited and tended to dump a lot of inferior products at marked up prices in its colonies. The country was devastated by multiple civil wars (the Carlist Wars) throughout the 19th century. When war with the US broke out in 1898, Spain had just barely put down an independence war in Puerto Rico and was dealing with two major independence wars in Cuba and the Philippines respectively. Its naval fleet was also no longer top of the line, with many ships unable to deal with new steam powered armored vessels.

It is unsurprising that it lost so quickly to the United States, which had focused on developing a large fleet with the latest in naval tech only in the last years of the 19th century.

Spain's fall from major power to second rate power status occurred earlier than this. While in the 16th and part of the 17th centuries, Spain was one of the (if not the) major player in European politics, by the late 17th century much of their hopes had fallen to naught. While Charles I briefly united Spain and the Holy Roman Empire under one crown, he divided his kingdoms on his death, leaving his son, Felipe II, Spain as well as parts of what are today the Netherlands. This was really important at the time because while the central plains of Castile produced a good bit of wool, it was mostly to feed the textile industry of the Netherlands and the large economic gains this brought. Later in the 16th century, Portugal was added to the Spanish crown. All seemed to be going well.

However, multiple expensive wars bankrupted the Spanish crown multiple times by the late 16th century, the Netherlands fought a series of expensive independence wars (eventually succeeding in throwing off Spain's control), and Portugal also successfully seceded.

One factor that Perry Anderson also points out is that the Spanish state's success in obtaining huge amounts of gold and silver from its American colonies meant that it stopped the slow process of reforms and centralization in its European territories, or at least slowed them down significantly. While France continued to march towards absolutism, especially by the time of Louis XIV ("One king, one law, one faith"), the Spanish crown could compensate for the fact that it was really a series of kingdoms (Aragon, Castile, etc.) under separate laws and regulations, even different currencies, and inefficiently administered. So long as American precious metals compensated for this, it was easier to do without major reforms for the time being.

Part of the problem with this was both the dependence on precious metals from the Americas (which were often 'spent' on credit before the shipment of gold or silver actually arrived) and the rampant inflation it caused in the Spanish economy. Inflation caused wages to go up in Spain, easy money made it simpler to import manufactures from abroad, and lack of reforms to foment industry left the country falling behind as England, France, and the Netherlands developed the bases for their later industrialization. As one old saying had it, "Spain is like a mouth that receives the food, chews it, and passes it on to the other organs, retaining no more than a fleeting taste of the particles that happen to stick in its teeth".

Part of the problem here was also that Spain was unable to integrate its American colonies in the 'ideal' style of modern colonies. In theory, the metropolis is supposed to have the money making industries and the colonies are supposed to produce the basic goods needed for those industries, then act as a market for the finished goods re-imported from the metropolis. Spain lacked the merchant fleet for such a large empire, the naval fleet to defend what trade existed, the industry to satisfy demand in the Americas, or the administration to make their control effective. Their harsh measures to try to reign in corruption and contraband often backfired, like depopulating Western Hispaniola (now Haiti) to fight rampant contraband only for French pirates to move into the abandoned lands and the French monarchy to send official government support soon after.

While the 17th century was, culturally speaking, the siglo de oro (Golden Century/Golden Age) of Spain, militarily and economically it was already on the decline. The last Habsburg died in the early 18th century, leaving a kingdom in ruins. After the Spanish War of Succession, involving the better part of Europe, the French were able to seat one of their own on the Spanish throne, thus beginning the Bourbon dynasty. The 18th century was one of major economic reforms, both in its European territories and its American colonies.

However, these proved too little, too late. When Napoleon unseated Fernando VII in 1808 and installed his brother, Joseph Bonaparte, as king, he unwittingly sparked the Spanish American wars of independence (begun as attempts to restore Fernando to the throne). The reforms had been a good start, but much remained to be done. The loss of many of its colonies, the major debts it had incurred, and major bouts of civil war, stalled further reforms, which in any case often took the form of Liberalization of European Spain while it meant the increase of taxes and further restriction of liberties in Spain's colonies.

By the time the Spanish American War begins, Spain is still trying to pull itself together. It failed to do so. It lost its remaining colonies and would spend the next half century in coups and civil wars, leading up to Francisco Franco's 1936 uprising against the Republic. Thanks to Hitler and Mussolini's support, Franco successfully overthrew the Spanish Republic and installed a dictatorship which was to last until his death in 1975.

Bibliography:

On early modern Spain, try Henry Kamen's Empire: How Spain Became a World Power, 1492-1763. I recommend you read it in conjunction with John Elliot's Imperial Spain: 1469-1716. Elliot focuses on the roles played by the then Kingdoms of Castile and Aragon, while Kamen tries to emphasize the roles played by non-Castilians and non-Aragonese subjects of the crown.

The classic academic study of Spain and its problems during this period is Raymond Carr's Spain 1808-1975.

A decent narrative history of the Spanish American War is Evan Thomas' The War Lovers: Roosevelt, Lodge, Hearst, and the Rush to Empire, 1898. It is a pop history, with all that it implies, but does a good job talking about the American side of the build up to the Spanish American War.

For clarification, what do you mean by wrong?