Tyler Cowen has the best analysis of the coin option:
And let’s say that — somehow — the whole thing miraculously worked out well from start to finish. The testier Republicans would in fact get exactly what they want. They would receive isolation from any negative consequences from brinksmanship, and a new narrative about how President Obama is a fascist incarnate.
If not taken off the table, the trillion dollar coin option makes it much more likely that the US will go over the “debt cliff.” That is, more likely that Congress will not vote to raise the debt ceiling by the deadline. This is because the GOP doesn’t want to be blamed for forcing the US government to default, and hence is reluctant to do so. Nor do they want to force the administration to suddenly cut off spending for the military, Medicare, Social Security, etc. So their threats are empty.
On the other hand the GOP would be happy if the Obama administration adopted the coin option, as it looks like a crazy idea to the average American. It would be a wonderful political issue for the GOP in the 2014 elections. So they’d be far more likely to push the US over the debt ceiling if they thought that it would lead to a trillion dollar coin that would be acutely embarrassing for Obama, rather than a debt default that would be acutely embarrassing for the GOP.
And that is why the Obama administration will not use the coin option. On its economic merits I think it’s a good idea. However, if I was Obama’s political advisor I’d urge him to loudly reject the idea for political reasons. If he ignores my advice and mints the coin anyway, I’ll strongly support the move since
I’m a hugely influential blogger who can single-handeledly turn around public opinion on the issue it will be a sunk cost and I’ll try to minimize the damage by convincing the public that it’s better than default.
PS. Off topic, but wouldn’t you know that when Obama finally does something I support (picking Hagel) the GOP is opposed. Apparently the GOP is upset that Hagel is not a warmonger who favors ever-increasing military spending.
Update: Nick Rowe sent me a very good article on NGDP targeting by his co-blogger Stephen Gordon.