CNN speaks with Fareed about the ongoing stalemate in Washington, the impact on America’s standing abroad and why investors are worried about the United States.

Is there something wrong with our system that this is happening again, three years of this budget stalemating?

It's a good question, because, let's be honest – the American system is designed to allow for easy gridlock. The Founding Fathers created a system fearing English tyranny, fearing an English king, so there are lots of different ways to veto stuff. There are lots of checks and balances. So, I think that's part of the issue. But really, what's at work here is something much more dangerous, which is here we're getting into an anti-democratic process, which is not the way the system was meant to work.

Look, if you want to repeal Obamacare and you're the Republican Party, you're the Tea Party, great. Go for it. If you want to get rid of entitlements, you want to cut government spending, that's great. There is a procedure. You pass a bill in the House, it passes in the Senate and the president signs it.

What's happening here is because the Tea Party does not have that ability, does not have a majority in the House or the Senate, and certainly the president wouldn't sign it. So what it's trying to do is really extortion, which is to say, we will block everything if you don't give us this, which we know we couldn't get passed through the democratic process, normally. That seems to me something quite new.

And so, when the number one near-term and long- term concern in this country should be about jobs, a new Gallup Poll is showing for the first time ever, it's dysfunctional government that is the most important problem we face. Things have really changed here. It's our own government that Americans are most worried about.

I was talking to an investor who worried about political risk. That's what investors talk about when they worry about places like Indonesia or banana republics or some African country. And he was saying to me, what we have now realized is the place we need to worry about political risk is the United States of America…It's not all the third world countries with creaky dictators.

President Obama won the election, and it was the makers and takers argument on the right. It's come back around and now it's wagon pullers and wagon riders. Is that it – at the core of this budget debate here, that too many people are getting too much from government and not enough people are pulling their weight?

You know, it is at the core, and it's part of the problem. By which I mean to say, if you feel that way, craft legislation that gets people off Medicaid, Medicare, Social Security. Get it passed. You know, that's the democratic way you deal with this. You don't do it by extortion, by holding up the legitimate functions of paying our bills.

But there's a broader issue here…I don't understand how burning down the house helps you make that case.

And it's incredibly counterproductive to shut down the government, to be fighting internally. You look at this picture of world leaders in Indonesia at the APEC summit. There is somebody missing there, and it's the president of the United States. It’s counterproductive to be fighting like this at home, fighting against ourselves at home when there is so much work to do around the world.

Well, it's a huge opportunity cost. In Asia, remember, the president had pushed kind of a pivot to Asia, because he felt this is where America's economic future is. It's the fastest growing part of the world. And it was a very successful move. It was a way of countering Chinese influence.

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Well, guess what's happened? Because the president can't be there, the Chinese sent both their president and their prime minister. They went out there [with] inducements of aid. So they're making hay while we're away. It's very, very unfortunate.

A lot has been made about the Tea Party…some would say intransigence and changing the script from Obamacare now to balancing the budget. Should the president be showing a different kind of leadership, a better kind of leadership?

I don't believe so. I think what it's meant to say is it's a plague on both your houses on one hand. On the other hand, this is not one of those cases. The president is standing firm on, I think, a core constitutional and democratic principle, which is precisely what we have been talking about. Part of a democracy is if there is a process in place that is democratic and constitutional, you accept the outcome. You know, whether it's your guy who won or the other guy, you accept that. If it's the legislation you like or you didn't like, you accept it.

That core principle is at the heart of our democracy. If the process worked, Obamacare was passed by the House, by the Senate, signed by the president, affirmed by the Supreme Court, the Congress passed a budget the same way. You have to live with that. And if you want to change it, change it using the same process. Don't take hostages.