Jeez, that's pretty bad. Weird too, since mine hasn't had the slightest bit of oxidation, I do nothing to "protect" it, and we live in the same town.
The blasted handles can/do act as an invitation to oxidation, and this is a fairly commonly reported issue (search in the Balisong forum). One thing I can think of to prevent it would be to "impregnate" the pores with something like Tuf Glide or a metal polish, then wipe it clean after 24 hours. You should be able to get it off the surface, yet the pores (where the rust starts and breeds) would still be protected. Maybe. Your hands might probably smell like Tuf Glide or polish too.
As for getting rid of the rust that's already on there, all I can think is polish and a buffing wheel (or a lot of elbow grease).