I really don't know why the administration doesn't take the "mint the trillion dollar platinum coin" option seriously. It is, as far as I can tell, perfectly legal. - Eschaton

The quote above is in reference to this Firedog Lake post on the Fiscal cliff and the latest Republican Doomsday plan for dealing with the fiscal cliff:

It’s quite simple: House Republicans would allow a vote on extending the Bush middle class tax cuts (the bill passed in August by the Senate) and offer the president nothing more – no extension of the debt ceiling, nothing on unemployment, nothing on closing loopholes. Congress would recess for the holidays and the president would face a big battle early in the year over the debt ceiling.

FireDog Lake responded to this news of the GOP economic bomb with:

if the vote includes just the Senate bill, where does that leave us? On January 1, taxes go up on not just the top marginal rates, but on every income earner, when the Bush tax cuts expire. Two million people immediately lose their unemployment benefits. Medicare reimbursement rates drop 30%. The sequester on defense and discretionary spending goes into place, and while OMB has the ability to lessen the impact there for several weeks, they can’t hold back the tide forever. And the country will hit the debt limit by the end of February or the beginning of March.

There is now the seemingly facetious suggestion of the Treasury minting a $1 trillion dollar coin to pay off part of the debt and avoid having to deal with Republicans using a possible U.S. sovereign default, by refusing to raise the debt ceiling, as leverage to get their way on tax and budget issues.

If the President doesn’t go that route, and he doesn’t direct his Treasury Secretary to mint a $1 trillion platinum coin....

My question to all you egg heads out there is this: Would this be legal as Eschaton suggests, and are there any reasons why it would be bad policy? I understand how the creation of new money can devalue a currency, but increasing the money supply has been done already by the Federal Reserve and is perfectly legal. Would the printing of such coins to lower the debt be any worse for the value of the dollar than a Congressionally instigated default?

According to The Economist is just might work:

Sovereign governments such as the United States can print new money. However, there's a statutory limit to the amount of paper currency that can be in circulation at any one time. Ironically, there's no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.

Even Paul Krugman is saying this is legal:

KRUGMAN: ... to print — to mint a $2 trillion platinum coin, which is ridiculous, but the whole debate is ridiculous, right? If you've got somebody who's holding the American economy hostage and trying to extort policy concessions that they could never actually pass through Congress and that they could never get past the voters, you go for whatever you can do to stop it. But he won't do that.

The idea seems to originate from Yale University Law Professor Jack Balkin and he notes while printing money is limited, there is no limit to coinage, hence the $1 trillion coin.

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.

Balkin has other ideas as well, such as creating an option to buy government property and sell it to the Federal Reserve:

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government's checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days. And there are probably other ways that the Fed could achieve a similar result, by analogy to its actions during the 2008 financial crisis, when it made huge loans and purchases to bail out the financial sector.

If two $1 trillion coins are legal, is this where America is at? Having to pull ridiculous tricks in order to pass even the most common sense legislation that the majority of the country wants? We don't even know the consequences of such a sudden money increase. We do know there is a majority in Congress who will not act in the national interest, no matter what the cost to the country.