Welcome to the Forum Jeff.
Others have explained why you're seeing a black residue, but it is often possible to remove it. If you think about it, every time you sand, you end up dragging some residue from the bushes onto the surface of the blank, but by the same token, the action of sanding is also removing from the surface the residue that appeared from the previous grit.
The residue is only less than skin deep. What you are seeing at the end of the process is the residue from the last grit you used - the residue from previous grits has been sanded off by subsequent grits, and in my experience, a rub with a tack cloth or with some of the shavings from the blank before you start your finishing process will often get rid of it.
The caveat to that is your use of water, which will wash that residue into the wood and make it into a stain rather than just a residue.
I'm not sure that wet sanding is necessary on wooden blanks. I certainly wouldn't bother with water on a wooden blank - it causes more problems than it solves in my opinion, and I'm not sure you would be able to tell the difference at the level to which you're sanding, which is the equivalent of about 2000 grit, between one that's been dry sanded and one that's been wet sanded unless it was under fairly strong magnification. 2000 grit is way beyond what I personally would bother sanding to, and you're going to have a super-fine surface in any case, with or without the water.
