"Looking at the size of the credit market in the United States, the equities market, the housing market and then looking at the size of the credit default swap market, which is around $62 trillion now, and the world wide derivatives market which is now $1,300 trillion dollars, I very much doubt that $700 billion would make any difference at all. In fact, I think it's a bad proposal in the sense that it will distort market pricing," Faber said. (Watch the complete Marc Faber interview on the U.S. bailout plan on the left)

Faber says that the fundamental problem is not falling home prices as U.S. Treasury Secretary Henry Paulson suggests.

"The problem is that too much money was lent against homes at inflated asset values. In other words that means at the peak of the market, people went and lent them 120 percent against the value of the home. And that is the problem—the leverage in the system," Faber said.

He added that the current bailout plan proposed by the Treasury and the U.S. Federal Reserve does not address this leverage problem in the markets.

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"My friend suggested what would be much cheaper—go in and buy a million homes in the United States and burn them down. Because that will reduce the supply. Of course it is an economic nonsense solution, but it is as good as the Treasury's proposal," Faber quipped.

Negotiations over the bailout to restore credit markets degenerated into chaoslate Thursday, as politicians wrangled over the details of the rescue plan. And while the bickering on Capitol Hill heated up, Washington Mutual, the largest U.S. savings and loan bank, was taken over by authorities and with JPMorgan Chase buying up most of its assets.

U.S. stock futures fell by more than 1 percent.