The paradox of absolute denial

I'm gonna make this one really quick, given myself a maximum of 10 minutes to write. It's a good, interesting topic, but I reckon I can get the basic gist down in a short amount of time. It concerns an interesting logical paradox that I awoke with yesterday morning (yes, in that same semi-lucid state that I've come to write a lot about over the course of the (almost) year I've been writing here).

Over at LessWrong, Yudkowsky wrote a very interesting post. You'll recall a long time I ago I wrote about the phenomenon of anosognosics. These are people who suffer from brain damage such that a limb is completely paralysed. However, what is interesting is that these people display complete denial of their condition, so much so that they take really strong evidence and construe and rationalise it to fit into their delusion. So instead of admitting my left arm is paralysed when you make me look at it lying limply by my side, I insist that the arm in fact isn't mine and is my mother's, who is lying underneath me in bed. Or something along those lines.

In that post, Yudkowsky postulates the existence of "absolute denial", a condition like anosognosia that is universal to all humans, all denying one aspect. That is to say there is one very obvious truth about the world that we cannot come to know because we rationalise any evidence contrary to what we've already come to believe. So for instance, it could be that all humans actually have tails, but this absolute denial has compelled us to either look at the tail and call it something completely different, or that it's so strong that our visual cognition filters that element out and our somatosensory systems ignore sensations from the tail. But to all non-humans it is perfectly plain. This is the tangent Yudkowsky goes on ... but I want to focus on something a lil' more fundamental about the problem.

This is another one of my steps on my crusade against logic, so please stay with me.

Is it at all possible for us to even consider the existence of absolute denial? Is such a suggestion logical sound?

Suppose it does exist, can we ever actually acknowledge its existence? It seems like we can't as that would be a logical contradiction. Absolute denial is absolute, to acknowledge it presupposes that it isn't absolute. Therefore anytime we state that absolute denial does exist, we've immediately proved it cannot exist because otherwise we would not have stated it in the first palce!

On the other hand, suppose it doesn't exist, can we ever actually come to know that? By its very nature, all the laws and truisms that we've come to accept as veridical become subject to scrutiny as potential rationalisations. And here's the really interesting thing I've come to realise (which I do not think is too far of a leap or a fallacy) the very fact that we have no proof nor any inclination to believe absolute denial exists proves it does exist! I don't think this to be a flaw in reasoning because from a definitional standpoint, this seems to be a rational entailment, and because we humans are stuck looking at the issue from within the system. Obviously looking from outside the system makes it an easy case of either absolute denial is true or false - but it's a different matter when you're within the system.

And here's the kicker.

Following from both my points, this seems to be the conclusion:

1. The fact that there is no proof for absolute denial confirms our belief in its existence.
2. We cannot believe in its existence because that is a logical contradiction, suggesting it to be false.
3. Therefore, we believe it cannot exist.
4. This leaves us with no proof for absolute denial, leading to point 1 again.

What it seems to me is that we're left in a logical loop. A chain of postulates that never actually leads anywhere. It's neither a vicious nor strengthening circular argument ... it's just circular. If I've done this right, this seems to be a huge problem with logical reasoning and using it in situations like this.

Any solutions?