The exact cause of type 2 diabetes is unknown. In the initial stages, the pancreas produces insulin; in fact, the pancreas usually overproduces insulin (hyperinsulinemia).
The body's cells do not respond to the insulin, so blood glucose increases. The increase in blood glucose stimulates more secretion of insulin. Eventually, the beta cells become "exhausted" and insulin production is decreased. Thus, a type 2 diabetic may not require exogenous insulin until later in the course of the disease.
Obesity particularly aggravates type 2 diabetes. Obese individuals require more insulin than non-obese individuals to maintain normal blood glucose. As body fat increases, however, insulin receptor number declines and receptor function diminishes, and insulin resistance increases.
Type 2 diabetes can become a viscious cycle:

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