For starters, insulin is a hormone released by the pancreas. It's commonly referred to as the "storage hormone". When you eat any food with carbs and to a lesser extent, protein, insulin is released. It then works by moving the recently digested blood sugars into your cells. This is great for muscle building and protein synthesis. But it's also not so great because it will also set some storage aside in your fat cells.
OK, so now that we know the basics of insulin, let's cover what happens when you start limiting your carb intake and insulin isn't being released like it used to, when breads and cereals were the norm:
- When insulin is low, the "block" on fat mobilization is released and your body will now be a lot more apt to break down the fat from fat cells. This is the first step in burning fat and probably the most important in dropping fat. (1)
- With lowered insulin, testosterone is more likely to, and usually ends up, binding to SHBG (sex-hormone BINDING globulin). This will lower your free testosterone levels and your overall T levels. This is bad for a number of reasons, the main one being muscle catabolism. (1)
- Because insulin is the storage-hormone, it has superb anti-catabolic effects. Basically, you won't be losing muscle when insulin levels are elevated. But if insulin is low, you no longer have this impenetrable defense against muscle loss.
- Cortisol will increase, which will lower testosterone and will increase protein breakdown and conversion of those proteins into glycogen in the liver.
- Cortisol can also decrease the conversion of thyroid hormone T4 into T3, which will slow down your metabolism.
Now, I am not saying all this to persuade you to think low-carb or low calorie diets are bad. They are not. They are probably the best way to lose fat. What I'm trying to point out is that dieting is very hard on your body, and for all intents and purposes, they suck. 
My advice is to never let yourself get too heavy. If you're always lean, you shouldn't ever have to worry about going on an extreme, arduous diet. If you do let weight get out of hand, then the road back to sexiness is going to be harder and longer. 
Cheat meals, bulking cycles and all-you-can eat buffets all have a time and place. The issues arises when that time is all the time and that place is your life.
1. McDonald, L. (2003) The Ultimate Diet 2.0
 
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