This week was extremely interesting in the sense that I feel that I had a brief glance at the Bernanke hand (in cards term). Let me try to explain.

It all started when Cramer almost collapsed in front of the camera saying that we have liquidity Armageddon. Then it was the Fed meeting and what we got was just usual “we are vigilant on inflation and bla-bla-bla“.

Weird. I thought that if even not-so-well informed Cramer knows that there is an Armageddon (shish, even I know that very well), than how come Bernanke is still playing his old inflation hand?

The answer came Thursday, when few more European hedge funds collapsed (nothing new with that) and European Bank opened unlimited discount window which was tapped for $200 bil in two days. Compare that with U.S. $70-80 bln injection after September 11, it’s almost triple that. Bernanke took a pause and injected “only” $30 bln, quite a lot, but nothing comparing to Europe.

What we got? Euro is dropping against the Dollar.

It all seems to me that Bernanke was playing the blinking game with the rest of the world. Whatever happens – he would not blink first. The world financial markets is the game of confidence, where everyone is bluffing, but the one who drops the cards first will lose. The money injection by European CB provides some liquidity for US as well, so why not make someone else do the job?

My conclusion is that Bernanke is not a political hack, who is getting his instructions from the White House to tune-up the economy before next elections. He is not a Wall Street slave as well, not a person who makes his financial decisions by looking at Dow Jones index.

He is a strict monetarist, whose target is the desired rate of the Treasury bonds of various maturity, which is strictly speaking the cost of money. He has some thought on where the 10-year Treasury bond yield must be and he will drain or inject until it settles in the desired range. Wall Street be damned. There is no Bernanke put