But does it really matter?
On a day-to-day basis investors will have been factoring in the negative outlook from the ratings agencies for a while now, so it is possible that this downgrade will have no immediate noticeable effect. And given the less than stunning performance of the ratings agencies in the past (credit default swaps rated AAA; Enron; etc) then I suspect their influence has been significantly reduced too.
However from a political perspective the loss of the AAA rating will further diminish the credibility of George Osborne (assuming he has any). After all the primary justification given by the coalition for the austerity waltz was the need to preserve this rating. Which is a pretty damned stupid mast to nail your colours to, when as Chancellor you have no control over Moodys, S&P and other agencies.
But I deliberately emphasised given above because I doubt that the motivation for austerity talk was ever anything to do with our credit rating. Rather the objective was always to roll back the state, privatise public services and above all put the fear of God into everyday working people. A clue is in the employment figures; unemployment isn't rising, but that's down to the number of people working part time or going self employed. I suspect the real level of employment is much lower that the statistic indicate.
So will the political impact of the rating downgrade have any impact policy?
Probably not. Austerity was talked up for ideological reasons, and the ratings loss will be used to further the current agenda. Einstein once stated that The definition of insanity is doing the same thing over and over again and expecting different results. Now if Osborne truly believed that austerity was the panacea he claims it to be, then he would indeed be a candidate for a shirt that fastens at the back for refusing to change direction. However, given that the beneficiaries of the current policies are his fellow travellers, it is safe to assume that this continued destruction of society's security is the desired result. Why else was the schools building programme cancelled; the banking system protected; taxes for the rich cut?
No, Osborne is not insane, just ideologically motivated and disinclined to support a healthy society.