Compounding Harm

Let's do some S&P math (using round numbers):

For 2007 the S&P finished with earning of about $70 and a P/E of 21 for a index price of about 1470.

If the estimated earnings for 2009 are $50 ( a number I've been seeing lately) and the P/E remained at 20 then the index would be around 1000. However, P/E has been falling and 10 does not seem like an unreasonable number, that would reduce the S&P to 500. This brings us back to 1995, the year the slope of the index line increased its slope (see the above chart.) If both earnings and P/E fall by half their high then the S&P will sit around 350, a 75% fall.